5 Rules That Will Make You a Better Trader – Introduction
Being a trader can be fun. Successful hedge fund manager, David Einhorn said this about his life as a professional investor. ‘To me, it isn’t even really work. Compared to hard work like manual labor or dealing with a difficult boss, my work is fun’. Another trader, Steve Cohen, who has been a trader for decades says that to him, trading is the most interesting this. To prove this, he goes with his trading station wherever he goes. In this article, I will highlight the five rules that will make you a better trader.
- Love what you do
To be successful in anything, you first need to love it. As a trader, you need to love and be passionate about the financial market. This is because trading involves a lot of ups and downs. You will make money, but at times you will also lose it. Remember, no successful trader has had a straight path ever. In 2014, Steve Cohen was forced by SEC to shut down his hedge fund and pay a $1.8 billion fine. He closed it and within days, he converted his company to a family office. He did this because he could not imagine living a day without trading. Likewise, you need to love trading and be very passionate about it.
- Accept mistakes
At times, you will do your research and come up with a good thesis. Then, you will initiate a trade and hope that your thesis will be proven right. At times, you will be right on this one. However, in other occasions, you will make mistakes or your thesis will not be proven right. To be a successful trader, you need to accept that you are human and all humans make mistakes. Even the most successful investors have occasionally made significant mistakes. Warren Buffet, Steve Cohen, Dan Loeb, and David Einhorn have all made mistakes that have cost them billions. Therefore, when you make mistakes, you are in good company.
- Manage your risks
In trading, you can make a lot of money by taking huge risks. However, you can also lose a lot of money by doing this. To be a successful trader, you need to put measures in place to manage your risks. One way of doing this is by opening small trades that don’t expose your account to much risk. One way of doing this is not exposing your account to a risk of more than 2%. This means that if you have a $1000 account, all trades that you open should be aimed at making a maximum loss of $20. This could seem to be a low profit, but when you do this for a long time, the profits and the long-term viability of your trading will be evident. In short, without proper risk management strategies, you cannot make it as a successful trader.
- Be ready to learn
To succeed in trading, you need to always be ready to learn. This is an essential rule that has helped me reach where I am today. You need to read books about other traders and investors. You also need to read content from credible institutions like Economist, Bloomberg, and Financial Time. The essence of doing this is that reading exposes you to the failures and successes of other traders. You can learn from other people’s mistakes and build up on their successes.
- Treat your trading as a business
Finally, you need to treat your trading as a business. When you are a trader, you are essentially an entrepreneur. Although it might seem different from what other businesses do, trading is actually a business. The only difference is that you operate your business from the computer. You should use all the business ethics of an entrepreneur to run your trading floor or your trading account.
5 Rules That Will Make You a Better Trader – Useful Tips:
- Another interesting reading on Forbes;
- To find out more on the matter, please go to DailyFX;
- For further information click on TimothySykes.