Successful Trading Career – Mind, Method & Money Management
Alexander Elder is one of the most successful traders of our time. His books on trading have sold millions of copies. He is also one of the most referenced writers in the world. I recently studied his book, which I recommend to all new traders. His book, Come into my trading room is regarded to be one of the best trading books today. In this book, he highlighted the 3 M’s that all traders must have to create its successful trading career. In this article, I will look at these M’s and what you can learn from them.
#1 – Mind
The first M stands for the mind. Like I have written for months in this space, the success of your trading career come from the mentality. The mind plays a very important role in determining whether a trader is successful or not. This is because all traders first consult their brains before opening or closing a trade. Unfortunately, most traders come to the trading world with the wrong perception about the market. Some start trading believing that anyone can make money without the required training. Others believe they can make money buy just buying and selling currencies or commodities without doing any analysis. Others come to the market without doing any research about the rate of success of traders. Others come to the market with little amount of money. To control this problem, a trader needs to change his thinking of the market. They need to take the financial market as a normal market where traders make and lose money. This can be achieved by taking time to read and be mentored by someone who is already successful. Doing this will help them understand the risks that exist in trading. It will also prepare them psychologically.
#2 – Method
In other words, this is the analysis. To have a successful trading career, you need to have a good method of doing your analysis before buying or selling an instrument. You need to have a reason for doing any transaction. In this, I mean that you must always have a reason when buying, holding, or selling short an instrument. The key to success here is the analysis aspect. This analysis should either be sentimental, fundamental, or technical analysis. For a trader, technical analysis is a very important tool to use. The secret to be successful in this is to select a few indicators, create the parameters, and then observe them always before making a transaction. There are hundreds of technical analysis tools out there. A common mistake many traders do is to focus on tens of indicators per trade. The secret is to select a few indicators (say 4) and then master them over a period of time. Then, you should use these indicators carefully. For fundamental analysis, you should be very careful. You should always have your eyes on the news and the calendar. For the news, when you have a trade in and then a negative news comes, you should know the value of exiting the trade. Doing this will help you reduce your chances of losing a lot of money.
#3 – Money Management
The third M, according to Alexander Elder is money management. You can be an excellent trader but if you don’t have excellent money management skills, chances are that you won’t achieve success in your trading career. Money management will help you minimize the amount of money you risk or lose. This is simply because no matter the skills you have as a trader; chances are that you will lose money. If you have excellent money management skills, you should only lose money that you can comfortably lose. The common rule is that you should only risk 5% (or less) of your money per trade. Another concept is on the minimum balance that you have in your account. Even after a big win, you should avoid the situation of irrational exuberance. Doing this will lead you to higher losses.