Discussion in 'Risk Management' started by Raleigh Lee, Jan 15, 2013.
What have you found to be the most effective steps to becoming a consistently profitable trader?
I think actually starting to manage ones trades better, for example, once you know you are in a losing trade, to get out with the least amount of pain. Also, to know when to exit a winning trade before it turns into a losing trade.
Today, even though I was not supposed to trade against an indicator that I use, I went long with the overall's day trend. Once in trade, price went against me. I knew this was going to be a losing trade. I had 3 options.
1) Kill the trade right away or ASAP.
2) Average down and hope to bring one contract to BE, and/or bring my cost down.
3) Leave standard stops and targets.
The trade bounced back a little in my favor but never went green, so I was able to kill it for just a 4 tick loss. I then watched market continue to fall until it came to where I saw a next possible place to get long.
I went long with a limit order. I then set targets and stops. Once trade went my way, I adjusted my stop not to BE, but not my standard stop either since I did not need a big stop with trade going my way. I stopped watching the market for a bit, and walked around. As I came back, I saw that price was missing my target by 1 - 2 ticks. At this point I was only up 2 ticks.
Now I have another 3 options.
1) Kill the trade.
2) Lower target a bit.
3) Leave my stops and targets alone.
At this point I decided to lower target a bit and raise stop a bit, and again stopped watching the market, and did other things. Thankfully, target was hit for a small profit for the day, which is better than a big loss for the day, since market continued down. I actually could trade more, but yesterday I took a small loss, so wanted a small profit today.
Loose your opinions, so called facts, news and ideology of how to trade!
Listen to the market and the instruments you trade.
A true success story (I wish it were me). I know a day trader (sometime swing trades) that make well over 1 million on a good day. He does not listen to news, watch charts or even bids or offers. He just watches the last price and knows his stocks and sectors. Because of this he can trade some serious size and make 8 to 9 figures a year.
Of all the things I did on my quest for consistent profitability, there were several that were harmful (such as trading live without a well-researched and tested trading plan).
Here are the steps that contributed to consistent profitability, listed in the order they should've been taken:
1. Research trading ideas by compiling statistical data over time through varying market environments (trending, ranging, chopping, calm, and volatile).
2. Develop entry and trade management rules for the ideas that indicate the highest odds of success.
3. In a simulated real-time environment, test these mini-plans.
4. Continue to study and tweak based strictly on statistical data, not on bias or feelings.
5. Discard any ideas that are not consistently profitable after commissions and slippage.
6. Practice trading the remaining ideas in sim for a period of time sufficient to have offered all the common market environments listed above. If you have difficulty following your trading plan, code the ideas into an automated trading system.
7. Trade live with smallest size, and size up accordingly as your account grows. If size affects your ability to follow your plan, trade small again, and consider automating to avoid "Thinking While Trading".
While practicing in sim, I highly recommend reading Mark Douglas' Trading in the Zone several times with a month of trading experience between readings.
I personally found the best trading ideas come from studying price action. A thorough study of price action reveals edges that do not degrade over time. The reason is that basic human nature is unlikely to change in your lifetime; it certainly hasn't changed much at all throughout recorded history.
Find a mechanical strategy that works.
NoDoji strikes me as a capable discretionary trader -- good for her -- but discretionary isn't for everybody. I for one just don't have the temperament for it. So my focus has been on mechanical aka algorithmic trading.
The prime advantage of mechanical trading is that it either works or it doesn't. No need to constantly take your psychological pulse; no blaming fear, greed, exhaustion yada yada for why your trades aren't working. Just follow the rules and profit or lose thereby.
This means thorough backtesting is essential for verifying that your mechanical strategy(s) work.
So first decide what type of trading best suits your disposition -- discretionary or mechanical -- and proceed accordingly.
Understanding and mastering control of your psychology. I would highly recommend reading, "Trading in the Zone," by Mark Douglas. Once you complete that I would recommend some daily ritual to prepare yourself mentally for day. I use meditation.
Another book you may find interesting and useful is "The Art of War," by Sun Tzu. It has nothing to do with trading and everything to do with trading.
Also, keep in mind trading is a profession, which requires advanced education. It's no different than going to Law or Medical School. There will be a price to pay (losses/tuition) to learn the craft.
When I started trading I would work roughly 16 hours a day 5-6 days per week. I'd watch the market live and then look at historical charts for hours. Then I'd read books and repeat. To become successful you have to eat, breathe, and sleep trading. If you're truly passionate about the business making this commitment isn't hard to do. Trading is all I ever wanted to do so the 16 hour days didn't feel like work.
And 95% aren't willing to commit to the above
Focus on only good trades.
As a requirement, would not you need a master trader to answer this ?
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