If you want to be a consistent profitable trader in the long run there are THREE elements of trading that you must have in place.These THREE elements which we will discuss are like 3 chairs of stool if you do not follow anyone of them you are bound to fail.
- A Robust Backtestested and Trusted trading System
You must trade a WINNING trading method
: Your trading system must be valid and profitable through past markets. The best way to win in the markets is to have a method that identifies potential trends and gives you entries and exits that put the probabilities on your side for winning trades. Many times these systems will have huge winners that pay for all the small losses and make you profitable
. Find your edge and learn how to make it a profitable one. If you have no edge and no winning system your trading account will be eaten away bit by bit.
The market has an edge over you, it is counter intuitive and slippage and commission are drooling to start chewing on your account.
You must manage RISK with proper position sizing Even with a winning system betting too big on one single trade can ruin you quickly when not if it goes wrong. Betting even 10% or more of your capital on any one trade can ruin your account with 5 straight losses. A 50,000 account=500 maximum loss per trade. The reason that risk management is so important is that with a high enough risk of capital per trade you eventually end up with a 100% chance of ruin at some point through a unexpected low probability event that causes an out sized move or a string of losses in a very volatile trading environment that were unexpected. The key is the trader must get from their first trade safely through to the returns they are looking for with out going to zero capital before they get there. Many professional money managers, firms, and traders learn this lesson the hard way. With out the proper risk management traders eventually blow off trading account.
You have to have the right MIND SET. To win in trading you must have faith in yourself, your system, and your method. If you are a trend follower you must believe that trend following is the most profitable way to trade, you must believe that your system is a winner because of the back testing you have done on price history or charts based on your rules. You must have faith in yourself to do the right things and remain disciplined. If you lose money you must understand that it is just part of the game and that you will make it back eventually. Only stress management, perseverance, faith, hope, passion, and a goal orientation can really take a trader from the trading starting line to successful trading.
Trading just for the money doesn’t work, because they first five years the money is not worth it in almost all instances and the new trader quits.If you have these three things, nothing can stop you, if you are missing any of these three things nothing can help you.