In recent years, more and more people have been involved with trading either as professional traders or as amateurs looking for an income supplement.
In this article, we present a series of principles and practices that a trader should use in order to have increased probabilities for profitability. We need to underline that these practices are not directly connected with each trader’s selected strategies but they have to do mainly with the application and the implementation of each strategy. We should never forget that the most important enemy of a trader is not the markets or the volatility but the trader himself or herself. Finally, we would like to remark that the sequence of the following principles is not necessarily ordered by importance.
Investigate and find your trading profile
Each person is different. Other people are shy, other people are risky, other people prefer small and secure steps and other people are fascinated by unexpected success and want to feel the taste of high adrenaline. This list is as big as all the human groups of behavior. It is very important for a trader to find out the trading style that is suitable by connecting his/her character with a trading attitude. Trader’s choices would be more targeted, more confident if he/she feels like home, meaning that the trading strategies that he/she uses are more familiar.
Invest from your extra capital – don’t use money that should be used to pay your bills.
It’s very difficult for each one of us to have discipline and equanimity when we feel that we risk capital and money that is supposed to cover our every day needs. When we trade, we should always keep in mind that if we lose the risked capital, of course it will hurt us because we lose money, but it’s not the end of the world. Emotions like panic and fear will certainly lead us to failure. This simple rule applies to everything we do that contains high risk.
Apply the correct risk management principles
One of the biggest traders’ mistakes is that they ignore risk management. Just think how much comfortable we will feel if we know from the very beginning how much money we may lose in every position that we open. In every phase of our trading strategy we will know exactly where we stand and where we may be, today, next week or until the end of the year, if things go wrong. This rule according to our opinion is the most important and critical for a trader.
Follow the trend – let the trend be your friend
When we are in a boat it’s better for us to have the stream help us instead of going against it. Following the trend, probabilities are on our side. Maybe our strategy has some errors or wrong estimations but if we indicate the long term market trend and enforce our strategy to “obey” to it then our results will definitely improve. Of course the eternal question is: how do we indicate the trend? There’s no secure method. We could start from the basics: higher highs and higher lows show us an uptrend until complex machine learning algorithms can confirm the trend even more.
An idea that doesn’t work, it just doesn’t work – don’t push things
At some stage, many traders think that they have found a profitable strategy. This strategy has been put into a machine for back-testing and optimization and the result was far beyond the expectations. Maybe it’s the refuse of failure maybe it’s the endless hope that things can get better; traders try to improve the strategy with filters and complex rules. The result is that they create strategies-monsters with hundreds of parameters but very sensitive to initial conditions. This problem is also known as “overfitting”. An idea either works or it doesn’t work. Don’t try to push or to enforce an idea that doesn’t work, to work. It is more than certain, that the safest road to find the correct idea is to reject the wrong ideas. Michael Jordan used to say “I’ve failed over and over again in my life. That is why I succeeded.”
Select the appropriate trading platform
Before you start trading, consider some choices. Maybe not the best or the worst choices (sometimes these things are not very clear) but the most suitable choices for you. Try many trading platforms, get familiar and select the most suitable for you. In the internet there’s a lot of information for comparing trading platforms. The factors that you should consider are the following:
- Is it free or should I pay? If it’s not free, how much does it cost?
- What tools does the platform offer? Are these tools applicable with my trading strategies?
- Are data (historical and current) free?
- Is the platform environment user friendly?
- Is there a programming environment where I can implement my customized indicators, tools and strategies?
- Does the platform provide back-testing and optimization mechanisms?
Never forget to set a Stop Loss
A trader must be expecting not only to win but also lose. Rudyard Kipling mentions Triumph and Disaster as two impostors that we should treat just the same. Suppose we opened a position and it has been proved wrong. This position must be closed according to our predefined rules. Stop Loss must be set according to market conditions; since we have entry rules we should have exit rules as well.
Study and receive training and education
In everything we do in life we should study and receive training so we know exactly what we’re doing. Epicharmos (Ancient Greek wise man) tells us from another era that “Studying my friends, gifts us with more virtues than the physical talents”. It means that we must select the right books, the right websites and the right seminars/webinars from the right people so we can enrich our knowledge. Never forget who is our “enemy” in trading: our “enemy” (apart from ourselves) is another trader that we should beat. It is very similar with the university examinations where we should study more in order to have increased possibilities of success.
Don’t open positions if there’s no reason
It is in human nature to repeat things every day (also known as routine). Many traders feel empty if they haven’t opened a position the last hours or days. We should open positions according to our strategy rules and not because we want to fulfill our gambling needs and our feeling of risk. A very successful trader says “if you doubt for a position, better not open it”. Now think that many times it’s not only doubt, it’s a complete absence of a signal!
Get the right tools
Too many instruments, too many time-frames, too many indicators, too many strategies and so little time. There are certain tools that will make your trading life easier, simpler and better. A trader should not spend the day doing things that software can do. There are many quality tools out there (i.e. on the internet) that will save plenty of time, that will do things better, faster and more accurately. Get technology into your trading life just like you might have already done with your car, an airplane or your mobile phone.
Find a good programmer
In the world of electronic trading platforms and automated algorithmic systems there’s one entity, which is of the most importance: a good technology provider. A good technology provider will implement your tools, indicators and strategies based on your rules but he will also give you precious tips and advice, he will guide you to see things in your strategies that you haven’t thought so far since software cannot have uncertainties and fuzzy rules. A technology provider will also enrich your system with tools and ideas and will answer your technical questions & will improve your technological environment with solutions that you have never even thought! If you want to approach trading seriously, put in your life a good tech tools provider and treat him as a very familiar person, just like you do with your dentist.
We have presented eleven useful tips that a trader should consider in order to reach faster, easier and cheaper success. Of course there are thousands similar tips but we tried to gather the most important and the ones that apply to our every day trading.