This is not financial advice and I am not a financial advisor. I’m sure there’re plenty of licenced professionals in your jurisdiction. Speak to them, not strangers on the internet with Hyman Minsky avatars.
A few general remarks before I go through the list:
I) Trading, especially doing so profitably, is difficult. The majority of traders lose money in the markets. Don’t expect to glance through Babypips.com, punt a couple of trades on a demo account, and suddenly turn into some Wall St. icon. Much like achieving success in other areas of life, it takes time, patience, and discipline (for a start!).
II) Some people are better ‘built’ for trading than others. Calm, objective, analytical individuals will have an easier time than their erratic and impulsive counterparts. Such is life. However, this is not necessarily a sentence. Namely, individuals belonging to the latter category can and do succeed in trading. They just need to be more self-aware.
III) Goes without saying, but this list is not exhaustive. In fact, trading psychology, habit formation, and so on is the subject of many books and overpriced seminars. In this short article, I want to share the ones I’ve found to be most helpful and most common in the traders I look up to.
Without further ado, let’s jump into the list.
Definition: adherence to system or method.
This is what separates traders from gamblers.
Let me elaborate.
Good traders follow trading rules. A collection of trading rules that an individual follows can be labelled a trading system.
What trading rules are, how to develop them, and so on is a topic for another article.
The summary version is that a trading system will typically prescribe the circumstances under which to take a trade, how to manage that trade, risk parameters, and so on.
It is important to note that this needn’t be a blind, robotic approach to trading. It’s a spectrum: there are good traders who are a lot stricter in sticking to their system, and there are traders who exercise more discretion and follow more generic guidelines.
The takeaway point is that good traders follow some form of predetermined guidelines and their trading is anything but arbitrary.
Beginners should seek to emulate that and start to build a trading framework of their own.
This is especially pertinent if you’re an emotional/impulsive trader. If you’re looking for ways to reduce your FOMO in trading, articulating rules and sticking to them is one of the best fixes.
I’ll write about creating trading systems in another article, but even compiling a basic list of previous mistakes and basic rules like “Thou shalt not buy the call of an anonymous Twitter shitposter” is a move in the right direction.
Definition: the state or manner of being organised.
This is a trait which will serve you well in all areas of life, and trading is no exception.
Being organised also goes hand-in-hand with being systematic about one’s trading.
There isn’t an awful lot to say on this point aside from the obvious.
Keeping a track of your open positions, your P&L, your equity, the amount of risk you’re taking, your portfolio, the success rate of your strategy, your strike rate on certain days/weeks/months, and so on all require you to be organised.
Good traders are organised. They know where everything is on their desk (certainly metaphorically, perhaps less often literally).
It is much better to start off organised and form that habit early, rather than realise later down the road that your accounts are a mess and spend days/weeks backtracking and fixing everything.
This point is mostly self-evident, so I shan’t dwell on it any longer. It is, however, one of the most important ones.
Definition: A sceptical attitude; doubt as to the truth of something.
New traders have a lot of questions. Fraudulent gurus, MLM schemes, and extortionate signal services have a lot of shitty answers.
There is no Holy Grail of trading.
No single system, method, indicator, chart pattern, horoscope oscillator, signals bot or whatever it may be will unfailingly reign in profits until retirement.
Anyone claiming that is the case is either exceptionally delusional or, as is usually the case, just trying to sell you a product.
Consider the following: if you happened to be in possession of a tool/method that yields exceptional returns and that apparently nobody knows about, would you really be selling it to anyone with an internet connection and a PayPal account with over a couple of hundred USD? The answer, I submit, is a resounding ‘no’.
In my experience, the best traders are those who have experimented with a bunch of trading systems, made and lost a lot of money doing so, and ultimately compiled their own system by taking things they liked and leaving things they didn’t from a range of different systems.
In other words, a Frankenstein of trading systems based on preference.
The idea that there’s one single system/indicator that’ll unfailingly make you stacks of money is romantic, but rarely true.
Beginners should beware of anything or anyone claiming to have all the answers, and instead be ready to try a range of techniques before ultimately creating their own.
Definition: observation or examination of one’s own mental and emotional state, mental processes, etc.; the act of looking within oneself.
The ability to look at previous decisions, and assess them honestly and objectively, is one of the most powerful tools in a trader’s arsenal.
Mistakes are excellent teachers. Mistakes which cost real money are even better teachers.
Introspection is the bridge between making mistakes and learning from them. The actual learning takes place once one looks back at the mistake, analyses it, and infers or deduces the error that was made.
Trading is no exception.
It is vital that beginners are able to look back at the trades that went wrong and learn from them.
It is easy to blame bad luck, evil market makers, your horoscope for the day, and countless other reasons for poorly executed trades. One makes progress when one takes responsibility for the losers as well as the winners, and endeavours to learn from them.
Definition: the quality of being patient, as the bearing of provocation,annoyance, misfortune, or pain, without complaint, loss of temper,irritation, or the like.
One could write a separate article entirely on how patience applies to trading. I will endeavour to outline only a few ways in which patience is important.
Technical analysis isn’t easy. You won’t get it right immediately. One of the few things that you can’t sell or teach someone is screen time — the hours spent in front of a monitor charting and trading.
Like most things, it takes time and experience to get better.
Beginners should be cognisant of this and focus on the journey more so than the destination i.e. aim for small but consistent improvement as opposed to expecting perfection from day 1.
It’s tempting to simply focus on one’s account size in the here and now and dream about all the extra zeros that will appear any day now.
This should be resisted.
The far more pressing considerations are whether I) one is profitable II) one is managing risk prudently.
If you add I) + II) + enough time (bearing in mind the principle of compounding), most material concerns about one’s equity vanish.
Beginners should be patient when planning and executing their trades.
Far from every chart you look at will offer an asymmetrical risk:reward opportunity. There simply isn’t always a trade to be taken on every single chart you look at. And that’s absolutely fine. It’s better, in my opinion, to let the trade ‘come to you’ and risk one’s capital fewer times but on convincing setups than more times on mediocre setups.
The same goes for managing open positions. It’s tempting to move to lower time frames to watch and manage open positions, but more often than not this results in overtrading and worse results. Traders are a lot more objective when they’re charting the setup than when they are watching the position (and their money) moving up and down. Be patient and let the trade play out.
Thanks for reading my article — I hope you’ve found it to be helpful.
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