Trading is exciting, rewarding and at the same time highly risky. It is important to note that most successful traders follow sound time-tested strategies that help them to make consistent profits, keeping their risks lower. If one is serious about trading, then improving one’s trading skills is highly recommended.
Stock trading is no rocket science, neither it is everyone’s cup of tea. We would be providing you with some basic rules which would help you in improving your trading skills.
First Rule: Trading Plan and Strategy:
Before you start trading, always have your trading plans. These plans include the trading strategies which could be a set of rules which guides you on the purchase of stock, the decision to sell the stock as well as the money management criteria.
One should develop a trading strategy based on a through backtesting which involves data collation across various market conditions and time frame.
Improvement in trading skill can be achieved with regular practice. If one wants to be successful in trading, then one has to approach it with the same mindset as one would while learning a new skill.
Second Rule: Technical Competency
Make yourself technically sound. Using the charting platform would help you to gauge ways to study the market. There are a plethora of technical tools which a trader can make use of to up the trading skills. Charting software are available for free or for a nominal price provided by brokers. For options traders, there are tools available to calculate the options prices. However, tools don’t make you are a good trader rather a good trading framework will.
Third Rule: Money Management
Save enough money from your income so that you can fund your trading account. To know how to invest with a small budget, click here.
It would come as a surprise for a novice trader that many successful traders do not attribute their success to their ability to pick great successful trades but rather to their ability to follow strict money management rules. Having a good risk-reward ratio is very important before making a trading call.
Fourth Rule: Be open to learning
Always treat yourself as a student in the market. The market being volatile, one should always be ready to learn every day. Trading is more of a skill that one develops over time. The willingness of the trader to overcome ones staunch ideas based on the facts and figures is an important characteristic.
Other than this, you should always keep in mind that sharing your trading strategy, the performance with the person you trust is still good, but when it comes to an opinion about the trade, then seeking help from others should be avoided.
In the actual world, the things which we read in books or journals or strategy might seem to be easy to use is not so. As you would be investing your hard-earned money in the market, you should first trade using virtual money in a demo account which is easily available on the internet.
Mental clarity is also an important criterion before you start trading. This will enable you to remain focused on the work and not on other activities which might distract you from trading.
Fifth Rule: Know your risk bearing capacity
Before you start trading, it is important to know the risk-bearing capacity. In the financial world, the term used in this context is stop-loss, which tells the amount of risk which traders are ready to accept in case of each trade they enter.
Using the stop-loss will provide you with the courage to bear the loss in the market.
Sixth Rule: Track your trades
Keep track of all the trade you make. Keep details of the trades with entries, exits, the stop loss, the notes related to the fundamental and technical analysis which supported you in taking the decision, the parameters of the stock selection, This would make your work easy while monitoring the stock and the market condition on a later date. It might be in the form of a report or a screenshot of the trades.
While you review your trades carefully, you can easily find out the pattern of the mistakes that you make while making a decision and thus accordingly work on it.
Trading is both art and science; thus one must approach the same with an open mind. The bigger picture is to develop a trading framework that fits one’s psychological profile. Trading can be highly rewarding if one is able to get the hang of it.
Don’t be in a hurry to trade, as the famous legendary trader Jessie Livermore famously said: “ The Good Speculators always wait and have patience, waiting for market to confirm their judgement.”