Is there a secret recipe for success in the trading industry? While there are no hard and fast rules that apply to all traders, there are some good habits that profitable traders can swear by. Do you adhere to any of these?
- Keep a record of their trades.
Every trader worth his salt could benefit from keeping a record of the trades they’ve taken. This can be in the form of a spreadsheet that tallies the wins and losses or in a more detailed trading journal that includes the rationale for entering a trade, the fundamental factors involved, and any decisions made while the position was open.
Having a track record can make it easier for a trader to analyze his trades and be able to make a more objective assessment of which strategies are working and which ones aren’t. Updating one’s statistics such as the win/loss ratio, expectancy, and other trade metrics can also give you a confidence boost when your performance hasn’t been faring so well or if you’re apprehensive to take a new setup.
- Review their trading journal.
For traders who keep an actual journal that contains more trade details, this can be even more instrumental in identifying strengths and weaknesses. This can go beyond the trade parameters and contain more insight on the factors that typically lead to you take a setup, the scenarios in which you cut your losses or press your advantage, and other psychological aspects that can be improved in terms of trading. In identifying these tendencies, traders can be more alert to similar situations later on, allowing them to potentially avoid repeating mistakes.
- Plan their entries and exits.
Most traders focus mostly on picking the best trade entries, whether it’s on a bounce off an inflection point or a break of a significant level. However, it’s equally important to pay attention to exit levels such as stop losses and profit targets. This way, you can be able to pinpoint at which point your setup is invalidated or how strong the move could be, also helping you calculate if your trade has a good return-on-risk.
- Practice proper risk management.
In line with setting your stop losses is the idea of practicing proper risk management, which generally involves determining how much you are willing to put on the line for each trade and calculating your position size based on this.
Apart from that, proper risk management also involves setting limits on how many trades you can take per day or at a time, how long you plan to keep positions open, and how much drawdown you can tolerate. In doing so, you can prevent yourself from getting too greedy or overtrading, making sure that your emotions are kept in check as well.
- Limit their losses.
Successful traders are able to limit their losses in that they can tell whether they should be cutting their positions early or not. There are instances wherein the market environment changes or an economic report suggests that your trade might not work in your favor, and these could be taken as cues to jump ship before the losses magnify.
Accepting a loss before the price even hits your stop is no easy feat but if there are enough reasons to justify exiting early, seasoned traders often grab the opportunity to trim their losses instead waiting until it’s too late.
- Press their winners.
On the flip side, successful traders also know when to press their advantage. This usually happens when strong trends materialize, allowing you to add to your position on pullbacks or breaks of significant levels. However, this is usually seen as an advanced trading technique since it also requires you to adjust your stops to protect some of your gains in the process.
- Adjust to market conditions.
It is often said that change is the only constant thing in the markets so traders need to be able to identify when such a shift is taking place and how they should adjust their positions. Aside from this, being flexible also requires knowing which trade strategy to implement based on market conditions, such as when liquidity is low or when volatility is high.
- Move on quickly from losses.
Losses are part and parcel of trading, which means that traders must be ready to deal with these from time to time. As they say, there is no use crying over spilled milk, as trading also requires being quick to get back on your feet to catch the next profit opportunity.
Drawdowns can be particularly challenging for a trader since this could lead him to question if he has got what it takes to be successful. Instead of dwelling on these negative emotions, successful traders are able to treat their trades as mutually exclusive scenarios, focusing instead on what they’ve learned from their losses and how they can improve their performance in their next setups.
- Leave room for volatility.
One of the more common mistakes of beginner traders is that they set stops too tight and don’t give the trade enough leeway for potential retracements. More profitable traders tend to give their setups a bit more wiggle room to account for the pair’s usual volatility or for possible spikes during the release of top-tier data or during session overlaps.
Making this adjustment requires minimal effort but it can allow you to stay in your trades for much longer, waiting for the noise to subside before price eventually has a chance to move in the direction of your trade.
- Keep on learning.
Last but certainly not least, successful traders don’t stop learning. Knowing the basics of fundamental and technical analysis can put you on track towards making profitable trades, but staying abreast of market developments and new trading techniques can help you stay on top of your game even during changing conditions. Having more tools in your trading arsenal can also equip you with more strategies to choose from, depending on what the market is presenting at the moment.
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