Why do trading tips matter?
Trading guides you to wealth and success in a short time. That’s the dream, because most traders start with a lot of enthusiasm but unfortunately 90% are broken within one year.
With this list I give you a guideline to become a better trader and to belong to the 10 percent successful traders, who maximize their potential.
I recognized from my own experience, that
- you should have a guideline,
- which leads you through unknown and difficult landscape.
This actionable list navigates you from the beginning of trading as far as very important personal skills, which are essential to become better trader and to gain sustainable success.
The list is separated into four chapters
- Money management
- Market rules
- Personal rules
Here you can download the whole list in a pdf-document and you get an additional bonus, how to identify a realistic trading system.
Let’s get started.
Your chance to become a better trader with this list of 61 trading tips.
1. Define your goals
First of all you have to define your trading goals. What do you want to achieve? These goals have to be
- Time Bound
Measurable means, that the goal has to be in numbers, which you can measure. In trading it is easy, because you can define the goal in USD.
Realistic is a little tricky. How much is realistic? If you try to figure it out, start with your actual income. If you earn for example 1,000 USD per month, then it would be unrealistic, that you earn 100,000 USD per month in your first trading month. On the other hand it is possible to earn so much money, but you have to have the skills and the financial foundation.
Time bound tells you, in what time frame you will reach your goal.
Example of a smart goal: I will work as a day trader at least 8 hours a day until the end of the year. I start with a trading account of 30,000 USD and never risk more than 1% per trade.
2. Plan your goals and stick to your plan.
Once you know what you want from trading, you must systematically define a timeframe and a working plan for your trading career. How much time can you devote to trading? How much time do you calculate for the first steps (see the next points)? How do you act with distractions? How do you plan your daily routine? Trading preparation, trading execution, trading analyzing? What about learning, searching and testing? These tasks are very time consuming.
3. Choose your market
Do you want to trade a specific market, for example, stocks, options, futures, forex, few of them or all?
4. Choose your trading time frame
Which timeframe do you want to trade?
Long term trading (weeks to months), swing trading (several days), day trading (close every position at the end of the day) or even shorter time frames up to scalping?
5. Choose your trading style carefully.
Each trading style has its own advantages and disadvantages. For example day trading has the advantage that you know at the end of the day, much money you have gained or loss. Furthermore you have no open position over night, so you can sleep well. The disadvantage is, that your trade can’t evolve over time and you won’t make really big winning trades like a swing trader.
As a day trader you make several trades a day and make a lot of decisions each day. As a long term trader you make, for example, two or three trades a week and less decisions. This can be less stress for you, depending on your personal preferences.
6. Match your trading style to your lifestyle.
Your choice of trading style is especially important from a lifestyle perspective. Day trading usually means you will be at your computer for hours at a time. Longer term online stock trading doesn’t require as much attention. As a rule, the shorter the time frame the more intense the trading. If you can’t afford the time for day trading, then you should consider another trading style.
7. Treat trading like a business
If you start trading this is your business. You have your office, which is your trading room with your office time, which is the trading time. You have suppliers, which are the exchanges, brokers, internet connection and computer and so on. They will send you their bill. On the other hand you will increase your trading account and have to pay taxes (hopefully, because otherwise you aren’t successful).
8. Choose a methodology and then be consistent in its application.
Before you enter any trade, you should know on which objectives you will make your trade. Do you look at fundamentals, like p/e ratios or do you look at technical indicators, like moving average or do you make a mixture of both? Remember that fundamentals drive the trend in the long term, whereas chart patterns may offer trading opportunities in the short term.
After you choose your methodology stick to it.
Before you start trading
9. Before you start trading:
Know your stop loss
Before you enter a position, know exactly how much you want to risk and when you will exit the trade. Stick to your decision!
10. Before you start trading:
Know your profit level
This applies equally to the profit target. Before you enter the position, you know at which price level you will cash in the profit. Don’t get too greedy and stick to your decision.
11. Select a broker that matches your trading style.
The type of trading you choose to do will determine the type of broker to use.
After you decide your methodology you can examine how many trades you will make on average each month and what data do you need. Brokers offer different packages and prices. Choose one that fits best to your needs.
12. Choose a broker who offers a trading platform that is appropriate for your style of trading.
Besides the trading cost and data cost, you should check what trading platform the broker offer. Does the trading platform include the analysis tools you need? Do you feel comfortable with the trading platform and its features? Do they develop their trading platform (regular updates)?
13. Choose a reliable broker
While this point is often neglected by beginners, it is impossible to overemphasize the importance of the choice of broker. That a fake or unreliable broker invalidates all the gains acquired through hard work and study is obvious.
It is your money! Do the work!
- Read the brokers documentation and policy.
- How efficient is the customer service?
- Do they offer segregated accounts?
- Check independent reviews and tests.
14. Pick your account type and leverage ratio in accordance with your needs
Broker offer account with various leverage. At the beginning you should use no leverage or only very small leverage. As you get more experience, you can increase the leverage. Remember, a leverage works in both directions! You can achieve faster, more profits but also suffer higher losses. In general, the lower the risk the higher the chance to survive.
15. Focus on a single market, expand as you better your skills
The world of trading offers a fascinating variety of markets. At the beginning you should restrict yourself to one market and maybe one product until you understand it. Then expand to neighboring markets, learn the differences and similarities. After that, move further on, if you like.
16. Don’t limit your trading
After you mastered one market look around, at which markets you can earn money too. The supply in big and constantly changing. Always appear new challenges and chances. Catch them.
17. Use A Low-Risk High-Reward Trading Method
Trading involves risk. Minimize your risk and maximize your profits. Before you enter a trade know how much you risk with this trade and how much you can gain. Example: You are willing to risk 100 USD and your profit target is 300 USD. Your risk reward ratio is 3:1.
18. Insist on a risk-reward ratio of at least 3:1 when setting your targets
One of the most important lessons in trading for beginners is to understand a proper risk-reward ratio. A high risk to reward ratio allows you to lose small and win big. If you gain some experience, risk-reward ratios higher as 3:1 may be attainable.
19. Calculate your expectancy
Expectancy is the formula you use to determine how reliable your system is. You can calculate your expectancy after you made at least 30 trades. The more the better. If you don’t want to risk all the money to calculate your expectancy, I recommend to paper trade or use a back test, with all its limitations. For further information look at www.safetradingstrategy.com
How to calculate the expectancy of your trading system?
Expectancy = (AW * PW + AL * PL) / | AL |
AW = Average winning trade in dollars
PW = Probability of winning trades
| AL | = Absolute value of the average losing trade in dollars
PL= Probability of losing trades, which is 1 – PW
AW = Average winning trade in dollars: 200 USD
PW = Probability of winning trades: 40%
| AL | = Absolute value of the average losing trade in dollars: 75 USD
Expectancy: (200 * 0.4 + 75 * (1-0.4)) / 75 = (80 + 45) / 75 = 125 / 75 = 1.66
The expectancy should be always above 1, because other way you will lose your money.
In this example you would get 1.66 for every Dollar you risk.
20. Keep your trading cost low
Believe it or make the painful experience. Trading cost can ruin a profitable trading strategy. Therefore it is essential, that you know your trading cost and keep them as low as possible.
21. Be aware of slippage
Slippage occurs, if you send your order for, let’s say 50.51 USD but you get your fill at 50.55 USD. This means that you have 0.04 USD Slippage per share. You have to add this slippage to your trading cost and this can also ruin your trading strategy.
A possible solution can be tot trade very liquid symbols or to use limit orders.
22. Be aware of spread
Spread is the difference between bid and ask price. In a very liquid market it is close to zero and the spread rises as the liquidity shrinks. In forex markets spreads are very common and differ from supplier to supplier as well as from each forex pair. In general you can expect, that the spread at the EURUSD currency pair is the smallest.
Spread are trading cost and you should minimize them as well.
23. Additional costs
Keep in mind, that you have a lot of additional cost, for example for the internet connection, computer, telephone cost, tax, advisors, newspapers, journals, books and the list goes on and on.
24. Check your winning edge
A “winning edge” consists of the favorable factors that set the winners apart from losers. You must have a reliable advantage to consistently make money trading online. Ask yourself – “What factors give me an edge?” Be specific. If you aren’t sure, you probably don’t have an edge. The only way to know is to analyze your methods and measure your results.
25. Do not add to a losing position
It seems to be obvious after all the other aspects, but nevertheless it seems to be a common sense to make this mistake. It causes disasters in trading history and unfortunately in the future too. Don’t ever add to a losing position.
26. Be patient with winning trades –
be enormously impatient with losing trades
It is possible to make large sums trading if you are “right” only 30% of the time, as long as our losses are small and our profits are large.
Your trading capital is essential for your business. Take care for it and protect it from any unnecessary risk and losses.
28. Understand that trading is about probabilities
Trading is all about risk analysis and probability. There is no single method or style that will generate profits all the time. The key to success is to keep the losses small while the profits are multiplied. Such a positioning is only possible by managing our risk allocations in accordance with an understanding of probability and risk and position management.
29. Study the markets, fundamentals, and technical factors leading the price action
Depending on your trading style, the fundamentals are more important or the technical factors are more important. But never ignore one part completely. If you trade depends mostly on fundamentals, the technical analysis can give you good entry and exit points. If you are a technical trade, respect the fundamental data as well. Especially big announcements can have huge impacts on price and volume. Be prepared for your trading.
30. Don’t go against the markets
As a beginner, you should stay with the trend. There is a saying: The trend is your friend. Join your friend and you will sleep better and your gains will be bigger too.
31. Keep your technical systems simple
Don’t make your system to complicate. You have to master the system and simplicity breeds elegance. Furthermore simple systems tend to be more robust over time.
32. Your trade plans and analysis should be easily understood and explained
Trading is not rocket science. You don’t have to be a mathematical genius or a professor to gain wealth in trading. You should be able to explain your trading system to anybody. This ensures, that you understand your trading system and then you will be able to execute it in the correct way.
33. Automate your trading as much as possible
I already pointed that trading can be very challenging and emotional. Therefore I highly recommend to automate your trading as much as possible. Another advantage is, that the trading platform will give you all the data you need to be in control of the system. You press one button and the system delivers you all the statics about your trading system. You can decide whether to trade it or not.
Furthermore if you have a fully automated system you can trade multiple markets and systems simultaneously and the computer watches all the entry and exit points.
34. Study money management
Money management is one cornerstone in trading. The expectancy of your trading system is one, proper position sizing is another one. At the top of that you should always know how much you risk with every trade.
35. Never risk too much capital on one trade
Set a percentage of your total day trading budget for each trade. As a beginner, I recommend not to risk more than 1% of your trading capital. If you are more experienced, you can increase this percentage according to your style and system.
36. Only trade with money you can afford to lose
Another rule for risk management. Risk only money that you can afford to lose. Successful traders have a “little bucket” of risk capital and a “big bucket” of money they’re saving for retirement or another long-term goal. Big bucket money tends to be invested more conservatively and in longer-duration positions.
37. Begin with small sums, …
… increase the size of your account through organic gains, not by greater deposits.
One of the best tips for trading is to begin with small sums, small risk and low leverage, while adding up to your account as it generates profits.
There is no justification to the idea that a larger account will allow greater profits in means of risk (see expectancy).
I can’t emphasize this enough
Market rules seem to be nonsense or obvious. This is the reason, why so many people ignored them. After they suffered a lot of pain, they put their experience (=pain) into a nice phrase. This phrase can save you a lot of money and pain. Read carefully.
38. “Markets can remain illogical longer than you or I can remain solvent”
According to Dr. A. Gary Shilling. Illogic often reigns and markets are enormously inefficient despite what the academics believe. This is another expression of “the trend is your friend” but from another angle.
39. Sell markets that show the greatest weakness, and buy those that show the greatest strength
If the market moves down, look for the weakest share and sell it short.
If the market moves up, look for the strongest share and buy it.
40. An understanding of mass psychology is often more important than an understanding of economics
Markets are driven by human beings making human errors. Therefore they can remain illogical longer than you or I can remain solvent! (see above)
41. The market is the sum total of the wisdom
… and the ignorance…of all of those who deal with it. (see above )
42. Restrain your emotions
Greed, excitement, euphoria, panic or fear should have no place in traders’ calculations. Nevertheless emotions come up and you have to handle them. Many successful traders recommend a balancing sport or yoga or even meditation. You should know, that we are human being with emotions, but you should have an idea how to handle them. An automated trading can also help to reduce the emotions.
43. Do what you understand
Trade only if you understand what you are doing and what are the possible outcomes. Don’t act on dubious recommendations, which you can’t prove or get quick rich schemes.
Do the same as Warren Buffet. He invests only in companies, which he understands. And today he is one of the wealthiest persons on earth.
44. Take notes. Study your success and failure
As Tony Robbins says: Success leaves clues. Follow the clues. Do the same. Keep a trading journal and find out what works and what does not. Leave what cost you money and add money to the things, which are successful.
45. Don’t second-guess yourself, but do learn from experience
Every trader has losses. That´s normal and part of the business. If you don’t like it, then image that it is your marketing budget. In every business you have to spend some money. But you have to look carefully if you follow your rules or not.
46. Be patient
Trading is not a quick get rich system. Be patient. If there is no trading opportunity, don’t trade. Stick to your plan. Don’t expect to get rich on a single trade.
47. Be disciplined
Trade as you planned before. Greed can keep you in a position for too long and fear can cause you to bail out too soon. Impulsive behavior can be your worst enemy. If you stick to your plan, give you a slap on your back.
48. Be humble and patient. Do not fight the markets
Recognize your failures, and try to accommodate them if you can’t be eliminate them completely. We all are human beings and make mistakes. That’s normal and also part of the business. Don’t be too strict with yourself.
49. Don’t be afraid to push the “order” button
New traders often face “paralysis by analysis” and don’t know, whether to push the button or not. If you are too afraid, practice it in a simulated account or automate your trading or both.
50. How to overcome fear
Fear is a big obstacle in trading. One possibility to overcome fear is to confront your fears head on to reduce their power. Then image dealing with the fear to make it less daunting. Keep in mind that fear is just excitement in disguise. Use the fear as an energy to perform well.
51. Don’t get emotionally involved with your stocks
Follow a set of buying and selling rules, and don’t let your emotions change your mind. Don`t get “married” with your stocks.
52. Capital comes in two varieties
One part of your capital is your mental wealth, the other is on your account. The mental capital is more important than your measurable wealth in your account. Don’t let holding a losing position to destroy your mental capital.
53. Know yourself. Define your risk tolerance carefully. Understand your needs
Before you can profit in trading, you have to recognize the markets. Before you can recognize the markets, you have to recognize yourself. The first step is to reveal your own risk tolerance. What are you mentally able to lose? When you do need a profitable trade? Does your trading style and trading strategy fit to your needs? If not, change your style and strategy.
54. Do not rely on wonder methods
Nearly overall in the internet, you can find some magical systems, which claim to make you rich without any proof and any risk. The only person who might get rich is the inventor of the system by selling it, not by trading it. Try to withstand these offers.
55. Share your experiences but follow your own judgment
It might be a good idea to discuss your opinion on the markets with others, but you should be the one making the decisions. It is your money. Consider the opinions and ideas of others, but make your own choices.
56. Invest in a good trading education
Invest in your education is the best investment you can do. The ROI can be two and three digit numbers. If you think education is too expensive for you, try to ignore it and take the losses.
57. Persistence is key when learning to invest
Learning to invest doesn’t happen overnight as all things we learn. It takes time and effort to become successful at it. Don’t get discouraged and don’t be impatient with yourself.
58. Associate with successful traders
Trading presents unique challenges. You are alone in front of your computer. This is very hard and lonely. Try to find like-minded persons. This can give you an additional support, new ideas and sources.
59. Build positive feedback loops
A positive feedback loop is created as a result of a well-executed trade in accordance with your plan. When you plan a trade and then execute it well, you form a positive feedback pattern. Success breeds success, which in turn breeds confidence – especially if the trade is profitable. Even if you take a small loss, but do so in accordance with a planned trade, then you will be building a positive feedback loop.
60. Do more of that which is working and less of that which is not
If a strategy is working well, increase your position size. If a strategy is doing worse, decrease your position size or paper trade it.
Nearly all famous people had to overcome a lot of obstacles. Regardless of whether you mention Donald Trump, André Kostolany or Abraham Lincoln. They all have in common that they were broke or beaten several times, but they never gave up.
You will not be rich overnight or a trading guru. This evolves over time, but you have to give time, effort and trust to this process. The reward will be overwhelming.
With this valuable list you are ahead the crowd and on the right track to maximize your trading potential.
That’s not all….
To stay ahead in trading you have to constantly train your trading experience and to update your knowledge, because your competitor is close to you.
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