When it comes to sell buy there is no one strategy or style that will work for everyone. In fact when we look at some of the most famous traders we can see their exact approach and what they chose to trade varied greatly. That said there are certain practices that all traders can benefit from. Here I have compiled the top 8 tips that any trader can implement and improve their performance.
#1 Paper Trade – But Not For Too Long!
One of the best ways for beginners to get started is to make trades only on paper. This is where you trade exactly as you would if you were using real money but no actual financial transaction takes place. Many online brokerages have the facility to paper trade without you having to put up any money. When paper trading it is essential that you keep accurate records. It is tempting to remove bad trades because you “didn’t really mean it” but understanding how you lost money is just as important as working out how you make it. One word of warning – do not paper trade for too long. While paper trading is a great place to start its no substitute for real trading.
#2 Study the Professionals
When it comes to trading there is no shortage of information available on the Internet. Don’t neglect your local bookshop or library however. A good place to start is “Market Wizards” by Jack D Schwager which interviews a wide range of the top traders of all time. You should also read books about traders such as George Soros, Jesse Livermore and Paul Tudor Jones. While the exact strategies that they used may not apply, what you can learn about the mindset of a master trader is invaluable.
#3 Know What Your Advantage Is
Warren Buffet often recounts the old adage if you are sitting around a Poker table and you don’t know who the sucker is, then it is probably you. The same is true for understanding what advantage you have over the market. If you can’t clearly explain what your advantage is over other players in the market is, then chances are you don’t have one. This advantage might be a great trading strategy, better money management or more in depth research but you need to have one.
#4 Remove Emotion As Much As Possible From Your Trading
The truth is unless you are a robot you are never going to be able to remove all of the emotion from your trading. However you should do as much as you can to not let your emotions drive your trading. No trader makes money on every single trade and so you need to expect to having losing trades. Provided that you exercise good risk management you can lose trades and still make money. Another common problem is to fall in love with a particular trading idea. You are trading to make money, not to prove that your ideas are right.
#5 Don’t Trade For It’s Own Sake
Over trading is a common problem for non-profitable traders. Trading can be exciting and staying on the sidelines doing nothing is difficult. But you will make your money as much by the trades you don’t make as the ones you do make. If you can’t identify a good trade then stay out of the market.
#6 Have A Trading Plan
No matter what trading strategy or style you are going to use, you must still have a trading plan. A trading plan details exactly how you are going to execute your trading strategy. This plan should include how large your position sizes will be, at what price you plan to enter the trade and what price you plan to exit the trade. This should include both an exit price for a losing trade and exit price if the trade is favorable.
#7 Don’t Chase Your Losses
A mistake that has wiped out more than one trader is to increase your position size in attempt to win back your losses. This is the gambling fallacy of trying to double down to win it all back. Invariably it just increases the rate at which you lose money. When trading on margin this can be particularly ruinous. This is why having a trading plan and sticking to it is so important.
#8 Evaluate Your Trades
The trades that you make contain invaluable information. Whether the trade made you money or not, you can still learn a lot. Make it a regular practice to go over your trades and analyze them. When looking at your trades ask on what basis did I choose to enter this trade. If you were using technical trading, what were the indicators that told you to enter the trade? Did the position size justify the risk and reward of the trade? Could you have entered the trade at a more favorable price? By asking yourself questions such as these you will be able to continually improve your trading performance.