Sunday, January 22, 2012

2 Must Needed Things To Become a Successful Trader


TraderaddaTradingSystem

I inspired to write this article because of one reader’s mail asking me about “How To Become a Successful Trader”. So I thought that besides only answering him why not write an article for Traderadda readers. To become a successful trader is as Easy as it is Difficult. It depends on yourself …. Are you Decided to become successful trader or not.

What is Mean by Successful Trader?

I am not an expert to give definitions, but I can only say one is a Successful Trader who is making consistent profits at the end of the month. I always remember “Bottomline Is Profit

Two Most Important Things required to Become Successful Trader:-

(I am not talking about basics like Knowledge about Markets, Capital, Online Trading Software, Computer with Internet Connectivity … I have taken this as granted)

  1. Must Have Trading System and
  2. Discipline

What is Trading System:-

A ideal Trading System consists of a Set of Rules which defines the Terms and Conditions under which a trader is going to Initiate(ENTRY) and  Close (EXIT) the trade. It also consists of rules for STOPLOSS, Money Management Rules(For Capital Protection), Risk management etc.

Trading System Criteria:-    A Trading System can be very simple or complex, it depends on the one who is designing it. And it must suit the needs of a Trader who designing it.

  • First you need to see what type of trader you are (I mean time frame, screen trader, or EOD Trader)
  • Then you need do design your Trading System Rules ---  This will vary from person to person. For Ex. One may Enter with Stochastic Oversold and again Coming Up from Oversold Zone, maybe combined with other parameters. It depends on IDEAs in your Mind. One may use Two Moving Averages Crossovers and one may use EMA crossovers of two or more averages.
  • Now One need to Backtest Trading System with the Historical Data.(I recommend to Backtest at least for 2 years of data.) If profit is as per your expectations then you can Paper Trade the system in real market for Min 6 Months. Don’t Trade with real capital till you satisfy with results of Backtesting and Paper Trading. If not satisfied with the results then use “Trial and Error” method to Improve your system to your satisfaction in terms of profitability. (As you must agree BOTTOMLINE IS PROFIT)
  • I would suggest at least 50% trades should be Profitable. (Success Ratio should be more than 50 %  at least.) And Risk Reward Ratio should be at least more than One.
  • Money Management and Risk Reward Ratio:- Initially one should not use full of the capital. And depending on your risk appetite fix your Risk per Trade. I suggest to keep only 5% to 7% of capital risk per trade. If you are trading with 1LK then 5 to 7 thousand risk (Means money you want to loose per trade if stoploss hit and trade goes against you)
  • Trading System Must have rules for all conditions from Entering to Exiting the trade.

Like this way design your trading system and thoroughly backtest it before use.

 

Discipline:-

This is very important part of trading system. Most of the traders fail here even though they have good trading system.

What is mean by Discipline in Trading?

Its nothing but the implementation of the rules in Real Trading created by you for your Trading System without deviating them. Here one must have control over Emotions like Greed and Fear. It means that when a Entry Signal is given by your system you must Enter as per the money management rules even any other thing is deviating you from this. Then must follow the rules of trading system like Stoploss, Profit Booking Partly, Reentering the trades, Carrying your Trades until Exit Signal as per your trading system.

Consistency:-

One must be very consistent in taking the signals of the trading system. Because you never know which trade will gives you huge profit.

Golden Rule:-  “Cut Off Losses At Once and Take

Our Profits Slowly”

What does it mean?

Many traders make entry as per the signal from trading system. But when their trade goes it the direction of their trade they close their position in hurry so as to book profit.(before the exit signal from their system) And after they EXIT they see that how that trade has become very high profitable trade. And when comes at STOPLOSS hitting they do not exit even stoploss is hit but decide to wait further thinking that trade will come in their direction. And here they make BIG MISTAKE.

So do remember above golden rule. Remember “SIR SALAMAT TO PAGDI PACHAS”

Wish you happy Trading.

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