As a trader, if you have lost some money in the past, chances are that you will be fearful when opening new trades. This is because you will think that the trade will cost you money.
We went through the same process early in our trading career. After losing a big part of our account, we spent quite some time before restart trading. When We started to work on the markets again, we was always nervous about the trades that we was opening.
You will also go through this process.
All traders want to be successful in the industry. However, studies show that no one can be 100% profitable as a trader or an investor.
As such, the best approach is to learn more about how to improve your trading skills so that you can reduce the risks involved in trading.
When you are fearful, chances are that you will make ill-informed decisions! For instance, you will spot an opportunity and then be fearful to enter the trade. Also, you could be in a position to take losses before the trade matures.
In this article, we will look at some of the best strategies to improve your trading strategies and skills.
#1 – A Trading Plan
Having a tested trading plan is one way of achieving success as a trader. The trading plan allows you to make well-informed decisions when entering or exiting a trade. You should take a few weeks or months developing and back-testing the plan you want to use in your trading.
This plan should include a number of tools such as technical indicators. Most trading platforms have a strategy tester which you should use to backtest the strategy.
By having this plan, you will be at a good position to make informed trading decisions and you will improve your trading skills. Of course, this plan must be in line with your daily goals (and career goals).
Boosted skills: Discipline, Decision Making
#2 – Specializing in a few instruments
There are thousands of assets that you can trade. In stocks, there are more than 5,000 publicly traded companies. If you are using several exchanges or platforms like DTTW, you have access to stocks from other countries. Other popular assets are commodities, cryptocurrencies, and forex.
Here, you can chose to be a jack of all trades or a specialist in one or two assets. Most people who go for the former strategy end up making huge trading mistakes. The fact is that you would rather be a master trader in one asset than general knowledge on everything.
If you are perfect at trading crude oil only, then you will be at a better position than a person who pretends to understand 10 currencies, stocks, and commodities.
Focus on a small basket of assets. In our experience, we have seen several highly experienced traders who focus on less than 5 assets.
Boosted skills: Analysis, Decision Making
#3 – A Mentor
Whether you are a new trader trader or an experienced one, you really need to have a mentor that sharps your trading skills.
Warren Buffett has talked about how Benjamin Graham mentored him. He has also talked about how his investment partner, Charlie Munger has helped him make financial decisions.
Billionaire William Ackman has talked about how he derives his inspiration from Warren Buffet. This shows that even you can become a better trader by having a mentor.
This should be someone who has traded for a number of years successful. The benefit of this is that it will help you understand the risks of trading, and this will improve your trading skills also.
Boosted skills: None in particular, but they all benefit
#4 – A Day at a Time
As a trader, you need to take a day at a time. This means that you should not use yesterday’s wins in today’s trades.
Maybe you want to bought WTI crude oil yesterday and made good money. The fact is that you will lose money if you take the winnings to today’s trades. Remember that the financial market is a very dynamic one and things change every second.
Therefore, if you lost money yesterday, you should trade as if you didn’t this did not happen. You should trade a day at a time.
Boosted skills: Resilience
#5 – Understand The Risks
This is very important, You should understand the risks involved in trading. In this, you need to know that trading is a risky business where you can make a lot of money today and lose everything tomorrow.
When you have a good understanding about the risks, chances are high that you will avoid making the same mistakes and you will improve your trading skills. You will also take it easy when you lose money.
Boosted skills: Risk Management, Discipline
#6 – The Right Lot Size
The lot size you use per trade is very important. The higher the lot size, the higher the risk will be for the trade.
If you have a $10,000 account, you should desist from using a 1000 lot size. With this lot size, chances are high that you will lose the entire money within a short period of time.
You should accept to make small amounts of money by using a smaller lot size than risk your entire account with a big size.
In addition, you should place a stop loss to the level where you will be comfortable losing the money. For instance, for a $10K account, a stop loss of $100 can be good for you.
Boosted skills: Patience, Discipline, Consistency
#7 – Mental clarity
The next thing you need to do is to ensure that your mental status is good when you are trading. In our experience, we have noted that the best traders are those who take care of their mental state well.
There are several ways in which your mental state can lead to substantial losses.
For example, when you are stressed up, there is a chance that you will open uninformed trades in a bid to make a quick profit.
In some instances, when you are so excited, there is a possibility that you will open trades hoping to make more money. Further, at times, you will likely open trades without doing any research.
Therefore, we recommend that you take good care of your mental state by being knowledgeable about trading psychology, taking short breaks when trading, and having a good mentor in the business.
Boosted skills: Resilience, All the psychological aspects
#8 – Use a demo account to backtest your ideas
The next thing you need to do to improve your trading skills is to leverage the use of a demo account. This is an account offered by most brokers that provides all tools but with virtual cash.
While a demo account is mostly used by beginners in the industry, the reality is that highly experienced people can use it to test their ideas. Before you apply a new approach in a live account, we recommend that you first try it in a demo account.
There are several rules when using a demo account. For example, you should create a demo with funds that you plan to use in a real account.
For example, if you plan to start trading with $1,000, create a demo with that amount. Second, you should always take the demo account seriously. Assume that you are using real funds.
Boosted skills: Discipline, Hard Skills
External Useful link to improve your Trading Skills
- Learn more Trading Skills on Investopedia