Trading tips come in many different forms. The most useful of these are those time-tested tips designed to keep traders on track over the long haul. Get started by viewing the trading tips video below:
In this Simple Trading Ideas trading tutorial we are going to cover some essential trading tips. Now these essential trading tips are actually what should be called the “Golden Rules” of trading. This is not an all-encompassing list by any stretch of the imagination, but they are things that you absolutely, positively must do in order to be successful in trading.
Do Not Trade With Money You Cannot Afford To Lose – While this may seem obvious to the majority of us, a large number of beginners enter into trading without being financially prepared. While you may see some trading touted as a way of making quick and easy money or a get rich quick scheme trading should not be viewed as an income opportunity. Why? Because trading is speculation, let’s understand that first and foremost. It is speculation because there is no guarantee of a return on your investment and it is speculation because trading is risky. Let’s be realistic about this. Beginners should not dare trade with money they can afford to lose because their lack of expertise creates a high probability that they will in fact lose their initial capital or most of their initial capital.
Learn To Trade – This is another one those things that seems logical and obvious to most of us. But you would be surprised at how many people simply do not prepare themselves for trading success. If you take a look at the statistics, the most successful traders in the world are those who have learned to trade. They took the time and put forth the effort to make a plan to excel in trading. This is not the type of thing that we see advertised on the web because learning to trade is more difficult initially than running out and purchasing a quick-fix trading solution. We all understand that the by learning to trade you will give yourself the necessary level of experience and skill to succeed in trading.
Always Control Your Risk – Well this is one of the big ones because there is no reward without risk. There definitely is no reward without controlling your risk. There is risk in basically everything that we do. Some of the risks are and small some of the risks are larger, but we have to control our risk, right? This is a tough thing for some people who are starting off to grasp. As simple as it is, it is unfortunately a concept whose importance is recognized when it’s too late.
A large percentage of beginning traders ignore risk control initially and then only pay attention to it after their account balances have dwindled substantially. At that point a beginning trader is looking at “what can I do to get back to breakeven”. They are now paying much more attention to risk than they were before. What got them into this particular situation in the first place was ignoring risk and this is something that most everyone goes through. I wish I’d known more about controlling risk and I wish that more people had spoken about controlling risk when I got started in trading. Everyone learns about it soon enough, basically one way or the other. Let’s do it the smart way and control our risk at the outset.
Exercise Patience – Okay, is this one of the toughest things for beginning traders to do. When you are starting out it’s quite natural that you want to see some action and trade, trade, trade. In reality you should take only the trades that your trading strategy dictates that you should take. Your trading strategy should be designed to enter into only those trades with the highest probability of success. By jumping the gun and going against a proven trading system you are setting yourself up for failure.
So like Rome was not built in a day, neither will your your trading fortune be. It takes time. That reminds me of that great scene in the movie with Robert De Niro, “Ronin”. In this particular scene they were sitting in a room awaiting instructions for their next move. They are all on a dangerous mission and one of the members of the mission blurted out, “It sure would be nice to do something”. Robert De Niro, the most experienced operative, quickly replied, “We are doing something, we’re waiting”.
Exercising patience leads to success. Waiting for the right moment and being selective is the smart way to trade. Don’t be someone who is always jumping at every single thing that might be a trade, shooting from the hip, guessing, etc. Those are all things that you don’t want to do, so again recognize that patience is a virtue.
Have A Proven Trading System/Strategy/Method – These are all part of your trading plan which everyone who is successful must map out for themselves. It’s best to do it from the start rather than trying to do “repair your account balance” kind of planning. You want your trading to follow the path of ready, aim, fire rather than fire, ready, aim. You definitely want to have your trading plan in place before you start trading.
You may have more than one trading system integrated into a full trading strategy. So before you take a single trade with real money you should already have a proven trading system in place. A proven trading system is designed to increase your probability of success. A proven trading system is also one that has been thoroughly researched.
Don’t Make A Bad Situation Worse – There are a number of ways in trading we can make a bad situation worse. When I say “bad” I mean something like a losing trade. Now don’t get me wrong losing trades happen in the world of trading. The point here is that if you are in a losing trade in no way should you add to it. That’s an example of making a bad situation worse. When you are in a losing trade the market is telling you that your trading system is not in sync with it. No matter how good your trading system is it will not always be in sync with the market. When you are in a losing trade let that losing trade run its course. Do not make it worse by adding to it.
Let’s say the situation is that you are in a trade and your down by a certain amount. You might think as many beginners do that, “I’ll just add another contract or another hundred shares or whatever and I’ll get in at a better price. Maybe this way my average price will be better when the market turns around. You may think that you can come out okay and that adding to your losing trade will help you to get to break even quicker. You might even think you can turn a profit.
So let’s say you’ve doubled your position and the market continues to move against you. You have now doubled your level of risk. The moral of the story is don’t add to a losing trade. Losing trades are losing trades for a reason. Changing your risk parameters to increase your level of risk is another example of making a bad situation worse.
Now it’s possible that the market may turn around and go in your direction. The possibility also exists that it will continue to move against you. In this case you will be left with a loss that is greater than necessary. Let’s say you have a position on and your stop loss is set at $2000. As the market moves against you you decide on a whim to increase the level of your stop loss to $4000. You are hoping that the market will turn around. Now if the market turns around that would be great, but that’s hoping.
What you want to do is to not change your risk parameters because they are dictated by your trading system. Your trading system should already be tested and proven to work so why go against it? So don’t increase the size of your stop and make a bad situation worse. You could be setting yourself up to take what could be a small manageable loss and transforming that small manageable loss into a large catastrophic from which you may not be able to recover.
So we just covered some essential trading tips. These tips are good to keep in your mental checklist, as it were, as you trade. This mental checklist of essential trading tips will help to keep you on track as you progress in your trading