The evolution of the World Wide Web has revolutionized every aspect of our lives. Cheque books have transformed into mobile banking apps, photo albums have become portable and television subscriptions have transformed to Netflix and Amazon Prime accounts (bless those that pay so their family and friends can use them for free). The way in which trading operates has also seen a drastic change. Gone are the days that trading the markets were only for the privileged few who had been passed the knowledge and understood the traders ‘language’. Nonetheless, does that then mean trading is suitable for everyone? Just because you can does it mean you should?
“Trading is a Discipline”
First and foremost trading is a discipline. Your emotions and adrenaline must remain under control at all times. It must not be converted into an expensive hobby and a conversation starter to entertain and impress guests or friends.
So let us focus on the priorities. Thankfully, unlike any other relationship in the world, your relationship with the markets has only one objective: profitability.
Before you travel any further along your journey into the unknown depths of the market, you must ask yourself, “Can I justify every trade I’ve made with a rational explanation?” Trading the market on your ‘gut’ may be a popular statement for many world-renowned successful traders. However, do not be under the impression that they simply trade on a whim. Their ‘guts’ are highly tuned and well-educated machines that have been developed over many years through experience. Trading is a business. In order for any business to obtain true success, it must be well versed in its marketplace, continuously growing and learning. Would you decide to become a chef tomorrow just because your local restaurant owner appears to be successful? No!
In order to cancel out the considerable noise of the market, you must define yourself within it. Will you be trading equities, options, futures, forex, or precious metals? Are you a maverick that operates across multiple instruments? Once you have narrowed this vast array of options to match your current capabilities it is time to build a strategy. Research is imperative however ultimately your strategy will always be unique. The rules within your strategy must be considered to be your “10 Commandments”. Here is an example of a few of my own;
- Thou shalt never have a stop loss of more than 30 Pips
- Thou shalt never set a financial target for the day
- Thou shalt not become emotionally unstable during trading hours
Is it profit that is the light at the end of your tunnel? If so, the vehicle that will ensure you arrive at your destination is managing risk. The exact moment you break the rules of your strategy with no remorse, regardless of the outcome, you have set a dangerous precedent. Do strategies need developing and editing? Of course! However, managing risk is an integral part of every trader’s life, whether that is on Wall Street or in the spare room which you have converted into your private office. Do not underestimate its importance. Your strategy must never allow recklessness! You have been warned.
Keep a Trading Diary
Evaluation of your decisions is an integral part of your progression as a trader. It is essential for a corporation or small business to track its expenses, turnover, and profit. Without this, they can never understand their performance and develop their profits. Trading requires the same approach. A trading diary should contain all trades, their outcomes, and your overall performance for the periodic timescales you are using. This, combined with an evaluation of the market’s current state, will allow you to adjust your strategy, manage your risk, and ultimately take you back to your key objective: profitability.
At Tradeview we understand the complexity of our clients’ requirements. This is why we are consistently developing our platforms and providing additional services to clients as well as prospective clients and those within the industry. The ‘Trading Room’ section on our website offers a wide range of educational articles, videos, a pivot calculator, and many other technical trading tools.
Senior Market Analyst