Anyone who wants to become a profitable stock trader needs only spend a few minutes online to find such phrases as "plan your trade; trade your plan" and "keep your losses to a minimum." For new traders, these tidbits seem more like a distraction than actionable advice.
Always Use a Trading Plan
A trading plan is a set of rules that specifies a trader's entry, exit, and money management criteria for every purchase.
With today's technology, test a trading idea before risking real money. Known as backtesting, this practice allows you to apply your trading idea using historical data and determine if it is viable. Once a plan has been developed and backtesting shows good results, the plan can be used in real trading.
Treat Trading Like a Business
To be successful, you must approach trading as a full or part-time business, not as a hobby or a job.
: Use Technology to Your Advantage
Trading is a competitive business. It's safe to assume that the person on the other side of a trade is taking full advantage of all the available technology.
Charting platforms give traders infinite ways to view and analyze markets. Backtesting an idea using historical data prevents costly missteps. Getting market updates via smartphone allows us to monitor trades anywhere. Technology that we take for granted, like a high-speed internet connection, can increase trading performance.
Protect Your Trading Capital
Saving enough money to fund a trading account takes time and effort. It can be even more difficult if you have to do it twice.
It is important to note that protecting your trading capital is not synonymous with never experiencing a losing trade. All traders have losing trades. Protecting capital entails not taking unnecessary risks and doing everything you can to preserve your trading business.
Become a Student of the Markets
Think of it as continuing education. Traders need to remain focused on learning more each day. It is important to remember that understanding the markets and their intricacies is an ongoing, lifelong process.
Hard research allows traders to understand the facts, like what the different economic reports mean. Focus and observation allow traders to sharpen their instincts and learn the nuances.
World politics, news events, economic trends—even the weather—all impact the markets. The market environment is dynamic. The more traders understand the past and current markets, the be
Risk Only What You Can Afford to Lose
Before using real cash, make sure that money in that trading account is expendable. If it's not, the trader should keep saving until it is.
Money in a trading account should not be allocated for college tuition or the mortgage. Traders must never allow themselves to think they are simply borrowing money from these other important obligations.
Losing money is traumatic enough. It is even more so if it is capital that should have never been risked in the first place.
Develop a Methodology Based on Facts
Taking the time to develop a sound trading methodology is worth the effort. It may be tempting to believe in the "so easy it's like printing money" trading scams that are prevalent on the internet. But facts, not emotions or hope, should develop a trading plan.
If it's approached as a hobby, there is no real commitment to learning. If it's a job, it can be frustrating because there is no regular paycheck.
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