Trading Secrets – What you Should Know
On a daily basis, people from all around the world are trying their hand in trading. Unfortunately, most people who try trading fail. It’s the sad truth. I have seen a few friends lose their life savings trying their hand in trading. The once who make it are really few. As I write this, a friend of mine is nursing a depression after losing more than $20,000 in a trade last week. In this article, I will highlight 10 key trading secrets that all new traders need to know.
#1 – You will Lose
The first of these trading secrets you need to know about trading is that you will lose money. Everybody loses. The best traders in Wall Street lose money all the time. As a trader, the earlier you know this the better it will be for you. Knowing this will help you be prepared psychologically. It will also help you mitigate losses using the best risk management strategies available. All the hedge fund guys and traders you know have lost money in the past and will lose in future.
#2 – Be Patient
Patience is one of the most important trading secrets you need to know as a trader. It’s impossible to hear about trading today and expect to make money tomorrow. All successful traders go through five major stages in their career. I have already covered these steps in the past. Understanding these stages will help you be a better trader.
#3 – Set Targets
Successful traders understand how charts move. They understand what to do during various chart conditions. For instance, if their preferred pair is having a sideways movement, they have a good understanding of how the chart will breakout. By understanding this, they are able to set price targets when opening their trades.
#4 – A Master of One, Not a Jack of all Trades
Successful traders understand the value of being a master of one thing than being a jack of all trades. This is one area where many newbie trades get it all wrong. You would rather be an expert in trading the EUR/USD pair than be knowledgeable about all the currency pairs. Understanding one pair will help you make better decisions. It will also help you save a lot of time and energy.
#5 – Less is Better
In my experience as a trader, I have learnt that less is better in a lot of ways. As mentioned above, the less the ‘assets’ you trade the better it will be for you. Another dimension is in the number of trades you open. Many new traders believe opening many trades will make them more money. In my experience, I have learnt that the more trades you open, the more losses you will make. My strategy is therefore to open a maximum of two trades per day.
#6 – Expert Opinions with a Grain of Salt
Successful traders spend their time reading and watching financial news. Bloomberg, CNBC, and Wall Street Journal (WSJ) are my best sources of financial news. In these mediums, there are many experts who give their opinion on a daily basis. While successful traders do this, they understand the need for making decisions independently. You should never open a trade based on the analysis of another expert. Doing this will end tragically.
#7 – Record
Successful traders understand the benefit of record keeping. Warren Buffett – though he not a trader – has stated that he always writes down a number of details when buying companies. For instance, he writes about the price of the company and the reason for buying it. He does the same when selling. As a trader, you should develop the habit of recording your transactions in a piece of paper or in a note taking application such as Evernote.
#8 – Money you can Afford to Lose
Trading involves a lot of money. Many companies now accept deposits from $200. If you want to trade using this amount of money, I recommend that you first differ it to a later time. The fact is that the lower the amount, the riskier the trade. You should never see trading as a way to financial freedom. Therefore, you should not risk your mortgage, health, and education funds to trade.
#9 – Never Risk too much per Trade
The lot size you decide to use per trade is very important. The higher the lot size, the higher the risk you have in your trade. To protect your account, you should never risk too much money per trade. By risking a lot of money, you will be subjecting your account to tremendous risks. Remember, in trading, you can lose or make money. It’s a game of chances.
#10 – Protect your Trades
Stop losses and take profits are very important tools to limit the amount of loss you can make per trade. You should make it a rule that you will never open a trade without a well-calculated stop loss.