For all its numbers, graphs and ratios, commerce is more an art than science. As in art projects, there is talent involved, but talent will only take you to a certain point. The best traders develop their skills through practice and discipline. They perform a self-analysis to see what motivates their trades and learn to keep fear and greed out of the equation. In this article, we will examine nine steps that a novice trader can use to perfect his art; For the experts, you may find some tips that will help you make smarter and more profitable transactions.
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Step 1. Define your goals, then choose a trading style that is compatible with these goals. Make sure your personality matches the trading style you choose.
Before traveling, it is imperative that you know where your destination is and how you will get there. Therefore, it is imperative that you have clear goals in mind as to what you want to achieve. you must then make sure that your trading method is able to achieve these goals. Each type of trading style requires a different approach and each style has a different risk profile, which requires a different attitude and approach to trading. For example, if you can not fall asleep with an open position in the market, you can consider day trading. On the other hand, if you have funds that you believe will benefit from the appreciation of a trade over a period of a few months, then a position trader is what you want to consider becoming . But whatever style of trading you choose, make sure your personality matches the style of trading you are doing. Inadequacy of the personality will cause stress and some losses. (For more information, see Investing with a thesis.)
Step 2. Choose a broker with whom you feel comfortable, but also a provider who offers a trading platform tailored to your trading style.
It is important to choose a broker offering a trading platform that will allow you to perform the analysis you need. The choice of a reputable broker is of paramount importance and it will be very helpful to spend time looking for differences between brokers. You need to know each broker's policies and how to create a market. For example, trading in the over-the-counter or spot market is different from trading on exchange-traded markets. When choosing a broker, it is important to read the broker's documentation. Know the policies of your broker. Also make sure that your broker's trading platform is suitable for the analysis you want to perform. For example, if you want to compromise on Fibonacci numbers, make sure that the broker platform can draw Fibonacci lines. A good broker with a mediocre platform, or a good platform with a mediocre broker, can be a problem. Make sure you get the best of both. (For a related reading, see How to Pay Your Forex Broker.)
Step 3. Choose a methodology, then be consistent in its application.
Before entering a market as a trader, you must have an idea of how you will make the decisions necessary to execute your trades. You must know the information you will need to make the appropriate decision as to the opportunity to enter or exit a business. Some people choose to examine the underlying fundamentals of the company or the economy and then use a chart to determine the best time to execute the operation. Others use technical analysis; As a result, they will only use graphics to time a trade. Do not forget that fundamentals drive the trend in the long run, while chart models can offer short-term trading opportunities. Whatever the methodology chosen, remember to be consistent. And make sure your methodology is adaptive. Your system must keep up with the changing dynamics of the market. (For a related reading, see What is the difference between fundamental and technical analysis and technical and fundamental mix analysis?)
Step 4. Choose a longer time for direction analysis and a shorter time to enter or exit time.
Many traders get confused because of conflicting information that occurs when we look at charts at different times. What appears as a buying opportunity on a weekly chart might actually appear as a sell signal on an intra-day chart. Therefore, if you take your basic trading direction from a weekly chart and use a daily chart for entering the time, be sure to synchronize both. In other words, if the weekly chart gives you a buy signal, wait until the daily chart also confirms a buy signal. Keep your timing synchronized.
Step 5. Calculate your hope.
Expectation is the formula you use to determine the reliability of your system. You should go back in time and measure all your winning trades against all your losing trades. Then, determine the profitability of your winning transactions versus the loss of your losing trades.
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Take a look at your last 10 trades. If you have not yet done any real operations, return to your chart to indicate where your system would have indicated that you should go in and out of an exchange. Determine if you would have made a profit or a loss. Note these results. Total your winning transactions and divide the answer by the number of winning transactions you have made. Here is the formula:
E = [1+ (W/L)] x P – 1
W = average winning trade
The average losing trade
P = percentage victory ratio
If you made 10 transactions and six of them were winning trades and four were losing trades, your percentage gain ratio would be 6/10 or 60%. If your six transactions earned $ 2,400, your average earnings would be $ 2,400 / 6 = $ 400. If your losses were $ 1,200, your average loss would be $ 1,200 / 4 = $ 300. Apply these results to the formula and you get; E = [1+ (400/300)] x 0.6 – 1 = 0.40 or 40%. A positive wait of 40% means that your system will earn you 40 cents per dollar in the long run.
Step 6. Concentrate on your trades and learn to love small losses.
Once you have financed your account, the most important thing to remember is that your money is in danger. Therefore, your money should not be needed to live or pay bills, etc. Consider your trading money as if it 's been vacation money. Once the holidays are over, your money is spent. Have the same attitude towards trading. This will prepare you psychologically to accept small losses, which is essential to manage your risk. By focusing on your transactions and accepting small losses rather than constantly counting your shares, you will achieve much more success.
Second, operate only up to a maximum of 2% of your total funds. In other words, if you have $ 10,000 in your trading account, never let any trades lose more than 2% of the account value, or $ 200. If your stops are more than 2% away from your account, negotiate shorter time limits or reduce leverage. (To learn more, see Leverage's double-edged sword does not need to be cut deep.)
Step 7. Create positive feedback loops.
A positive feedback loop is created as a result of a well executed exchange according to your plan. When you schedule an exchange and then run it correctly, you create a positive feedback model. Success breeds success, which creates trust, especially if the trade is profitable. Even if you take a small loss but do it according to a planned trade, you will create a positive feedback loop.
Step 8. Perform a weekend analysis.
It is always good to prepare in advance. During the weekend, when markets are closed, study the weekly charts to look for patterns or information that may affect your transaction. Perhaps a model is a double top and experts and news suggest a reversal of the market. This is a kind of reflexivity where the motive could entice the experts while the experts reinforce the motive. Or the experts can tell you that the market is about to explode. They may be experts who hope to attract you to the market to sell their positions with increased liquidity. These are the types of actions to look for to help you formulate your upcoming trading week. In the cold light of objectivity, you will make your best plans. Wait for your adjustments and learn to be patient. (To find out what the market tells you, read Listen to it, not its experts.)
If the market does not reach your point of entry, learn to sit on your hands. You may have to wait for this opportunity longer than expected. If you miss an exchange, remember that there will always be another one. If you have patience and discipline, you can become a good trader. (To learn more, see Patience is a virtue of the trader.)
Step 9. Keep a printed record.
Keeping a printed copy is one of the best learning tools a trader has. Print a chart and list all the reasons for the trade, including the fundamentals that influence your decisions. Mark the card with your entry and exit points. Make relevant comments on the chart. File this record so you can refer to it again and again. Write down the emotional reasons for taking action. Have you panicked? Were you too greedy? Were you full of anxiety? Write down all those feelings on your record. It is only when you can objectify your trades that you will develop the mind control and discipline to execute according to your system rather than your habits.
The steps above will lead you to a structured approach to trading and, in turn, help you become a more refined trader. Commerce is an art and the only way to become more and more competent is to practice in a consistent and disciplined way. Remember the phrase: the more you practice, the more lucky you are.