Top 10 Key Factors of Trading: Which Makes You a Professional Trader:
Introduction:
Anyone who wants to become a proficient stock trader can quickly learn internet tips like "Plan Your Trade; Trade Your Plan" and "Keep Your Losses To a Minimum" in a matter of minutes. To inexperienced traders, these suggestions seem more like a diversion than useful advice. You can improve your chances of succeeding in the markets by combining these suggestions.
"IMPORTANT NOTICES"
"Think about trading as a business, not as a hobby or a profession."
"Make preparations ahead of time and keep learning."
"Set attainable objectives for your business."
Rule 1: Give Priority To Your Trading Plan:
A trading strategy is a set of rules outlining the parameters for each trader's Buy, Sell, and Money Management.
Before spending real money, test a trade idea using the technologies that is now accessible. You can examine the viability of your trading plan using historical data by using a technique known as "Backtesting". Once a plan is established and backtested and shows good results, it can be used in real trading. Following The Plan is essential in this situation. Going against the trading plan is considered a terrible strategy, even in cases where a trade closes smoothly.
Rule2: Handle Trading Like a Business:
You must Treat Trading Like A Full- or Part-Time Business rather than as a pastime or a job if you want to be successful.
When it's taken as a hobby, learning isn't really committed to. If it's a job, the lack of a consistent payment can be annoying.
Trading is a business that comes with Costs, Losses, Taxes, Stress, and Danger. You should conduct research and develop a strategy to optimize your business's potential as a trader, since you are essentially a Small Business Owner.
Rule 3: Make the Most of Technology:
The Trading Industry is a competitive one. It is reasonable to presume that the opposite party in a deal is making every use of the technologies at their disposal.
Traders may examine and analyze markets in countless ways with the use of "Charting Systems". By leveraging past data to backtest an idea, costly mistakes can be avoided. With a Smartphone, we can receive market alerts and keep an eye on deals from any location. We often take for granted the kind of technology that might improve trading performance, such as a Fast Internet Connection.
Investing in technology and being up to date on new goods can make trading enjoyable and profitable.
Rule 4: Take Care When Managing Your Investment Funds:
To save enough money to open a trading account, one must be persistent and hardworking. It can become considerably more difficult if you have to repeat the process again.
It's critical to realize that protection of your trading capital does not ensure that you will never lose a trade. "Every Trader Has Lost Trades in The Past". Capital protection is avoiding unnecessary risks and doing everything in your power to keep your trading business viable.
Rule 5: Learn to Read the Markets:
Consider it to be ongoing education. Traders must stay committed to learning something new every day. It is crucial to keep in mind that comprehending the markets and all of their nuances is a continuous, lifetime effort.
Thorough Investigation enables traders to comprehend the facts, such as the significance of various Economic Reports. Traders can hone their intuition and pick up on subtleties by being focused and paying attention.
The Markets are impacted by "Global Politics, News, Economic Trends, and even Meteorological Conditions." The landscape of the market is ever-changing. Traders are better equipped to handle the future when they have a deeper understanding of both the past and present markets.
Rule 6: Take on Only Risks You Can Bear to Lose:
Make sure the funds on the trading account are expendable before using real money. The trader should continue saving if it isn't.
You shouldn't put money for a Mortgage or College Tuition in a trading account. Traders should never let themselves believe that these other significant responsibilities are merely sources of credit.
It is traumatizing enough to lose money. This is particularly true if the money involved was never supposed to be at danger in the first place.
Rule 7: Create a Fact-Based Methodology:
It is Worthwhile to invest the necessary time in creating a reliable trading strategy. The "So Easy It's Like Printing Money" trading frauds that are widely available online may be very alluring. But a trading plan should be developed based on facts, not feelings or hope.
It is usually easier for traders who are not in a rush to learn to sort through the vast amount of information available on the internet. If you were to Start A New Career, you would have to complete a year or two of coursework at a college or university before you could apply for jobs in the New Field.
Rule 8: Use a Stop Loss At All Times:
A Trader's predetermined level of risk acceptance for each trade is known as their stop loss. The Stop Loss restricts the trader's exposure during a trade and might take the form of a Percentage or Dollar Sum. Because we know we will never lose more than "X" on a trade, using a stop loss might help reduce some of the anxiety associated with trading.
Even if it results in a Profitable Trade, it is not a good idea to trade without a stop loss. If it complies with the trading plan's guidelines, exiting a lost trade with a stop loss is still considered good trading.
The ideal—though impractical—is to close out every trade in profit. Protective Stop Losses assist guarantee that risks and losses are kept to a minimum and that you have enough capital left over to trade the next day.
Rule 9: Recognize When to End a Trade:
An Ineffective Trading Strategy or an ineffective trader are the Two Main Causes of Trading Cessation.
A Trading Plan that is ineffective results in bigger losses than historical testing has predicted. That takes place. Perhaps there has been reduced volatility or a shift in the markets. The trading plan isn't working as it should for any reason.
Remain Detached and Professional. It's time to review the trading plan, make a few adjustments, or create a brand-new one.
An Ineffective Trading Strategy is an issue that requires resolution. It does not always mean that the trading enterprise is over.
A Trading Plan is created by an Inefficient Trader, but they are unable to stick to it. "This issue may be Exacerbated by Bad Habits, Lack of Physical Activity, and External Stress." If a trader is not feeling well, they might want to take a break. The trader can get back to business after resolving any issues and obstacles.
Rule 10: Maintain a Perspective When Trading:
When trading, keep the overall picture in mind. We shouldn't be shocked by a lost trade; it happens in the world of trading. To have a Lucrative Business, one must first complete a winning trade. What matters is the total earnings over time.
Emotions No Longer have as much of an impact on a trader's performance after they accept wins and losses as inevitable parts of the game. To be clear, we should never lose sight of the possibility of a losing transaction, even while we should still be thrilled about a particularly successful trade.
Keeping trading in perspective requires setting reasonable goals. Your company ought to generate a respectable profit in a respectable length of time. Should you anticipate being a multimillionaire by next Tuesday, you're putting yourself in a precarious situation.
What Should I Do If My Trade Is Profitable—that Is, in the Money?
Making Money in the market might be simple during bull periods. It takes experience to know when to take profits. Using trailing stops is one technique to remove some of the emotion from closing a profitable position.
How Much Should I Risk on Any Given Trade?
First off, the answer to that question should already be part of your trading plan in the form of a stop loss. As a stop loss, you can use a financial stop, e.g., $500, or a technical stop price, such as if the 50-day moving average is broken, or new highs are made. The key is to remember that you always need a stop loss as part of your trading plan.
What Are The Key Elements of a Trading Plan?
The starting point is the impetus for the trade. If from a fundamental development, such as an Economic Data Report or a comment by a Fed official, your trade is based on those fundamental factors, and your trading plan should reflect that. If your trading plan relies on technical analysis, such as remaining above the 50-day Moving Average, again your strategy should rely on that. The key is to adjust your position size to give yourself enough room to stay within the stop loss and not risk everything in a single position.
How Much Money Should I Commit to a Single Trade?
Position Size is the primary determinant of the outcome of any trading strategy. You want to be sure your stop loss can tolerate a minor loss relative to your trading capital. If your stop is $1.50 away from the current market, you'll want a position size relative to your stop loss that does not consume too much of your trading capital.
Say you're only willing to risk $500 on the trade, and your stop is $1.50 away, based on a technical price level, from the $20 current market price. That dictates a position size of approximately 333 shares.
"$20-$18.5=$1.50; $500/$1.50=333.33" shares; this would require $6,660 in tradeable capital (333 shares x $20 current market level) in order to match your trading plan.
Remember that you can follow a specific strategy with a lesser stake and use less of your trading cash.
The Last Word:
Most of the above suggested guidelines are unified by one thing: A Fear of Danger or Monetary Loss. This is because your company engages in profit-driven trade. Losses are inevitable. The key is to keep your losses to a minimum so you can keep trading until you find more Lucrative Opportunities.
Traders with experience have a system in place to help them recognize when it's time to accept a loss. Traders also recognize when it's time to take profit, so they may move their stop loss in the direction of the transaction to lock in some profit or take profit at the Current Market Price. There will always be another trade opportunity later on, in either case.
Revision—May 3, 2023: An earlier draft of this article displayed an inaccurate computation in the FAQ section regarding the quantity of shares and tradeable capital needed to commit to a single transaction.