Don’t f*ck it up
That's right! Rule number one is don't f*ck it up. Trading is very easy; however, most people fail because of a lack of discipline. Rather than doing what they know they should do, they deviate from working strategies and click, click, click ... half of your money is gone! Why? Well maybe because trading actually is so easy but discipline is not!
Another important factor: Sometimes you do the wrong things and get rewarded for it, so you begin to think that your gut feeling, the universe, our intuition must be right. That’s usually shortly before you ruin your trading account.
Don’t gamble
How many times did you hear that the stock market actually is a big Casino? People all over the world keep telling me that and I generally smile that away. Far from it the stock market is a function of supply and demand or buyers and sellers. That’s what eventually drives the markets. So, our task as traders is to find strategies based on predictable patterns in the market that give us an edge over other participants. The good news: there are hundreds of working strategies and ways to become rich in the stock market. It has a lot to do with statistics and probabilities – and of course money management. If that sounds too complicated for you to do it on your own there is even greater news: You can easily get one of our working strategies, stick to it and begin earning money in the market today. So rather than doing all the research alone take something that is proven and works for many other people too. Whatever you do, don’t gamble! Your bank statement will be very thankful for that.
Hope is not an option, follow your strategy
Oh NO!!! My trade is down and I start losing money … well … I mean it’s a great company, so it has to go up. Hhhhhhhh I am down even more … eventually the market will understand and it will turn … The products are great, I like their adverts, my cousin says he might buy a product of them too …
Sounds familiar? I hope not. Whatever you do in trading, make sure that you stick to your system especially when it comes to manage losses. HOPE is not an option! No matter how much you or someone else or the press love a company or their products. If your asset doesn’t get the job done for which you hired it: FIRE IT!
The sooner the better! Of course, you need to give it some room at the beginning and have some initial risk. But if it doesn’t get on track, there is no way to hope for the best. As they say: it only stops at 0 and you don’t want to be in it then (unless you short and make money when the price goes down ☺)
Always know and limit your RISK
So how much would your maximum loss be in a given trade? You always need to know that and furthermore, you need to have fixed rules on how much you allow a single trade to lose. That depends on your personal risk tolerance as well as on the size of your trading account, however we always aim to have very small losses and a multiple of that as earnings. Drop me a message if you don’t know how to do it yet, as after all it’s only about the money you keep!
Only invest if you have a clear signal
Doesn’t that look promising? It could turn tomorrow. Or next week. It looks like it will become XYZ (whatever you think you might see) or it surely will break out! How many times have I heard these things and people jumped into trades? Probably as often as the question: “Is it too late to enter?”
Here is the hint: If you have to ask chances are it’s way too late, so don’t ask 😀 Also it only becomes a signal when it actually happened and gets triggered, never before. Would have, could have and should have, have never been successful trading strategies, so forget about hem and only trade when you have a clear signal and leave wishful thinking out of your trading.
Take control of your downside and don’t forget to take your profits
Great, you know your risk and you are taking care of your downside! Well that’s what you should do at least. So, let’s assume you are in that class of advanced traders that actually understood these fundamentals and stopped guessing and gambling their way to 0.
Now of course it is not enough to take care of your downside, you also have to make sure that you take your profits when signals turn or the run into your direction is over. How would you know? Well it is part of your strategy and in many cases, this seems to be even harder for traders than limiting their risks.
Why is it so essential to take profits? Well we already know that we will have a certain percentage of losing trades and that is part of the game. Therefore, we need to make sure that we have winning trades that pay for it and leave something on the table for us for profits. Our goal after all is to make money in trading, right? What else would be the point doing it?
Make sure you can earn a multiple of your risk
Which trades should you enter? Yes, we have strategies and setups that exactly tell us what to do, when to do and how to do. And yet there are some trades that are simply not worth it and these are the trades you simply shouldn’t do!
I know it’s hard for beginners to understand that in trading you don’t make more the more you trade. The more you refuse to make silly trades where you basically change money or even have higher chances of losing than winning the better your results will be.
So, focus on the best trades and leave the bad and mediocre ones for others. How do you determine it? We call it Risk Reward Ratio. If I can’t at least double my risk I am not interested in the trade at all! I personally prefer tripling my risk or more, however you should never settle for less than 2x your risk. In that way you ensure that even with 66% of losing trades you still don’t lose money. And of course, by being patient and disciplined and only trading the best setups your winning percentage of trades should be far better than 50% with the right strategies.
Use common sense
When in doubt think! How many times did people enter a trade that they in hindsight never would have. Your stock looks like it will shoot up but the market is going down? Your favorite company is about to announce earnings and you think they will do great despite the whole industry being in trouble? Well guess what … common sense is very uncommon these days and therefore a huge opportunity for those who think.
Be aware of divergent signals and follow the trend
Life as a trader could be so easy if it wasn’t for divergent signals! You have two signals telling you the price might go up and two telling you the opposite. ARGH! What do we do now? First of all: Don’t panic! It’s part of the game. Now examine your signals carefully. Are they all strong or are some weaker? Do you have a track record of following some signals and none with the others?
If you don’t have a clue simply don’t trade and see if you can get in at a later stage when you have confirmation of what the market is doing. Also make sure that you know which trend the market is in as following that trend usually is a wise idea. The trend is your friend as you know. And if you don’t know what to do you can always wait until it becomes clear or until you have another great opportunity with less confusion. In my experience: the more divergence, the more often the trade will fail.
Don’t let your emotions run your trading (or past/lucky trades influence your actual trades)
How do you feel today? In trading you shouldn’t be emotional at all. Please leave your feelings at the doorstep when you enter the trading realm (figuratively spoken as I prefer trading on the beach or the pool most of the time).
The number 1 reason why people fail in trading are EMOTIONS! How else could you explain that 90% of all traders lose money in a 50/50 environment? It’s fear and greed and insecurities about what to do. Do you have a proven strategy? Great! Then follow it and don’t deviate from it unless you know it doesn’t work anymore.
The worst thing you can do
is gamble (see above) and deviate from your system. Why? Because sometimes you will be lucky and your brain starts thinking you are the new market wizard by following your intuition, the last tick signal or the outside cloud formation. These things don’t work! Make sure you don’t get influenced by that.
The best way to avoid it is simple: Stick with your system and leave the emotions out of your trading!!!
