Trading is one of those things that is easy to learn, but hard to master. You need no degree, no specialized training, and most of the activity can be easily performed from the comfort of your own couch. However, as simple as it might be to break into the market, becoming a successful trader and making serious money are totally different.
If you ask any number of successful traders how they reached that point, they will tell you discipline, hard work, research and lots of trial and error. Everybody can start trading – but few will actually make something out of themselves. To succeed, you need to adopt their mindsets and work from there. Here is what all the Wall Street big shot traders have in common.
Not Taking Things Personally
The first step in becoming a great trader is treating everything like a business. Sure, viewing trading as a hobby in the first few months, when the stakes are (hopefully) low is fine, but just dabbling with this activity and treating everything like a game can prevent you from gaining experience and learning valuable lessons.
Furthermore, similar to other businesses, trading involves expenses, taxes, losses and risk (more about these later), so the key is to accept that both loss and profit are par for the course. Traders who want to do this long term have to put in time and effort to develop strategies and plan for the long and short term.
Exploiting the Newest Technologies to Their Advantage
Some of the greatest analysis tools that are used in a wide variety of fields, such as the Bollinger Bands, were invented by people who were trying to make it into the trading market. Nobody is saying here that you must come up with new trading methods and tools, rather using the technology at your disposal to obtain an edge over other market actors.
Modern trading tools are available to everybody, and they are constantly improving and evolving. In our day and age, fast computers, high-speed internet connections and complex software are available at every corner. Furthermore, you can use other technologies, such as trade automation and market research tools to test a new strategy.
Or you can develop unique trading plans based on market patterns that other people might not have spotted. You can be sure that all the Wall Street bigshots got where they are because they made sure to always be up to date with the newest technological trends.
A Keen Knowledge of Risk Management
Along with knowing how to use tools and having an appropriate mindset, learning how to manage risk and protecting trading capital at all cost is what keeps traders in the game. What does risk management involve? It can take many forms, such as knowing when not to put too much money in a trade and trading with a stop loss.
A stop loss, for instance, decreases the risk a trader is exposed during a particular trade by imposing a limit on how much money they are willing to put forward, as to not stretch their finances too thin. Even though all of us would like to end a trade with profit, sometimes the market forces do not permit that, and there is nothing you can do about that.
For instance, George Soros’s keen knowledge of how risk management works placed him amongst the greatest traders in history. Back in the 1990’s, right after Germany’s reunification, the British government was striving to keep the British Pound above 2.7 marks, even though the two countries were vastly different economically.
These attempts caused the interest rates and inflation levels to skyrocket. George Soros, a keen speculator, bet against the pound by adopting a short position. With the pound’s value plummeting to historic levels, the British Government eventually withdrew from the Exchange Rate Mechanism, and Soros made $1 billion from this trade. It was a risky move on Soros’ part, but it worked.
Accept Losses and Move On
Losses are part of doing business – the sooner you understand this, the faster you will be back on track to becoming a good trader. Although focusing on winning is tempting, this mentality works only in tv shows and movies (I’m looking at you, Bobby Axelrod). Successful traders do not think of trading in terms of how much they can win, rather how much they can afford to lose without being knocked out of the game.
But accepting losses is not quite enough – you also have to learn from them. If two currency pairs do not work together, try not to focus on them as much in the next trading session. A good way of assessing your losses and drawing a historical perspective on your trading activity in general is by keeping a journal – note down all details, from time, price, direction, date and your interpretation of what went wrong and what you can do in the future to avoid repeating the same mistake.
Successful Traders Know When to Stop
The thrill and excitement of launching risky trades can be a bigger incentive to continue than monetary winnings, but good traders know when the jig is up and it is time to call it a day. The market is everchanging, so occasionally, it is a good idea to take a step back and reevaluate your strategy. You should also stop when factors such as emotion, stress and fatigue start affecting your decisions.
Forex trading is an exciting and rewarding activity, but you must take some measures in order to be successful. Professionalism, the willingness to improve and a keen knowledge of risk management are all part of a successful trader’s handbook, so if you want to turn trading from a hobby into a profession, you must function in the same parameters.
This post is sponsored by Mtrading.