Trading is a process, much like building any business. There is a pattern of success that must be followed, a sequence of events if you will just like starting your car. You do not need to know how the carburetor works or anything about the engine timing. It either starts or not. All you know is that you turn the key and you have power if everything works in the right sequence.
Trading works the same way; with a sequence of cause and effect with a correct sequence of events. Take out any step and you fail. There are no secrets in trading, no conspiracies. It is all a simple set of steps that lead to success.
Unfortunately, traders often get trading program and see the picture on the box and without reading or following the instructions attempt to trade immediately without following all of the instructions.
Amateurs often fail because the concentrate only on the trading signals an ignore all of the peripheral areas of money management and psychological controls necessary to match the professionals.
There are distinct Pre Trading areas to master before you trade:
- Determine your personal objectives with well defined goals, time frames, and specifics of what you will do to achieve this success. Write a complete business plan for your trading.
- Determine your trading objectives and write a specific Trading Plan down to a daily plan of action.
- Determine your style of trading. Will it replace or just supplement your income. Most important, know your comfort zone and risk tolerance. Consider your account size, time frames and percentage risk on each trade.
- Education and Research is the critical issue of trading success and make sure you have a thorough understanding of the market your will trade, its risk issues, trading mechanics, tools, etc., etc.
- Develop or purchase your system. You must understand that everyone sees the market differently. You may not identify with a particular approach, but that does not mean it does not work. As you get more experience, you will see that almost any technical approach works, but it must be tempered with proper money management and mental discipline.
- Allocate your resources. You must have adequate capital and time to implement your system
Trading is a skill like any sport.
You must Practice, Practice, Practice using the rules of your system. The more you practice, the better you become. Practice with a SimBroker until you get a statistical edge and then begin trading live with a small risk level.
Develop a set of rules that apply to your trading system, you money management and you as an individual based on your Pre Trading research and decisions.
Routines are very important. Make sure that you write down all of your trading rules then keep a log of all your trades (SimBroker included) to see how you follow them and be sure to pay close attention to what happens when you do not follow the rules. You want to get into an automatic mode just like when you drive to the market.
Finally after trading is done, you want to go into a Post Trading mode. The market is always changing from active to passive, trending to flat, slow to fast, and are based on the world market, world conditions, and time of year. New regulations, issues to trade, types of options, are constantly evolving. Stay up to date and assess how different changes affect your trading and business plan.
Continue to expand your knowledge and track your progress toward your goals. Remember this is a journey not a sprint. Learn from your setbacks and your successes. But most importantly keep your goals in front of you and remember your commitment when you started the journey.
Trading can often be boring and frustrating. The path to success is not straight up, rather a series of peaks and valley. I have often heard encouraging words like: “Keep your eye on the ball”, “Keep your shoulder to the wheel” , “Keep your nose to the grind stone”, etc., but it is very hard to work that way.
Focus on the process, be patient and disciplined and enjoy the ride.
About Bill
