Successful trading requires analysis, record keeping, money management and near flawless execution. Without all of these elements, profitable trading may very well remain elusive.
Analysis should be done in a systematic way that uncovers opportunities in ?your? timeframe. The choice of timeframes can range from months to seconds. There is a saying that goes ?there are a lot of ways to skin a cat.? Choose a method that suits your personality and capabilities. Some traders gravitate towards quantitative research because of their ability to conduct that type of analysis while others feel more at ease using bar formations and classical technical analysis. On the other side of the spectrum, depth fundamental research may be the ticket for others.
Whatever your choice, become an expert at your craft. Stick to it and you will be competing with some of the most motivated and successful people in the world.
Detailed record keeping is often neglected by traders. All actions and trades should be entered in a diary or log book where they can be analyzed at the end of the day, week or month. From the entry and the exit of each trade, print out a chart. The print out should include notes about why you entered and exited and any other notable observations during the trade. Track your trades. Did they have an edge and if so, did that that edge hold up over time?
The better records one keeps, the more prepared they are to make changes and adjustments to their program and trading plan.
Proper money management gives you the ability to keep you in the game when things are going wrong and live to fight another day as they say. Committing too much to any one trade or not adhering to your stop out point, can shorten a trading career exponentially. Using a small portion of your available capital per trade will allow for a bad streak without knocking you completely out of the game. At 2% risk capital per trade, a trader can have over thirty losses in a row, and still preserve more than half of his or her capital. Keeping your risk to a minimum also allows for a trader to maintain a cool head and not panic or let unwanted emotions rule your trading.
Predetermine the risk on each trade and stick to it. This will allow you to potentially be around long enough to see your edge pay off.
Flawless execution is a trademark of a focused trader. Unforced errors add costs to a trader?s business. Unforced errors are mental mistakes that are preventable. These errors can be in numerous forms. Buying when wanting to sell or selling when wanting to buy are common mistakes that traders face when they lose focus. Taking the whole trade off when the plan called for only removing a few contracts is also very common and potentially very damaging. Costly errors can also occur when a larger position was entered than what was intended. These errors are generally made due to poor mechanics or communication. Trading is difficult enough without introducing erroneous costs and stress. Be calm and focused when entering and managing trades and be free from the pitfalls of unforced errors.
Trading requires solid analysis and meticulous record keeping. Many traders may be tempted to stop there. Finish the equation and be sure to manage your funds with great care and focus. Follow this formula and you will put yourself in an excellent position to succeed.