How to make money trading? I
guess all of us who got fascinated by the fact that one can live trading
securities asked ourselves and others the question. It sometimes seems that
making profits in financial markets has become a phenomenon of ‘Loch Ness
monster’ – everybody has heard about it, but who has really seen it. In the
same fashion you have heard that it is possible to make money trading, but have
not heard who has done it. There are quite a few people who live on the money they
make trading stocks, futures and Forex. Read the series of ‘Market Wizards’ by
Jack Schwager to learn about the people and how they did it. Although, I have
had mixed results in my trading career I can say that I have made more than I
lost trading Forex. In the post I want to share with you some key elements that
you should deal with before you can become profitable. Let me start.
If you want to make extra money and are ready to trade Forex, futures, indexes and stocks I recommend Etoro.
If you want to make extra money and are ready to trade Forex, futures, indexes and stocks I recommend Etoro.
For living in US: Instaforex
http://instaforex.com/en/index.php?x=FYLC
Have an edge
What does that mean? You
should notice some tendencies in the market you trade that happen regularly and
they help you to make more money than to lose. There are some tendencies that
happen from time to time and you can sometimes make money trading them, but in
the long run you will lose more. Take time to find and test those ones that
give you more profits than losses. Then form strict rules for trading them and
start to trade. An edge can be trading multi months range breakouts, or trading
chart patterns or simply selling at resistance and buying at support. It is
important though that you test the tendency that seems to be working and see if
it works long term.
Have your own investing philosophy
Various investors see
markets from different angles and they are still able to make money having
different perspectives on what moves this or that specific financial market. You
might be long term, short term investor or even day trader with a unique
approach towards markets and be very successful. What type of investor you are
going to be depends on your personality, needs, risk tolerance and available
capital. The more risk averse you are the longer your time frames for investing
will be. If you are willing to take significant risks you will probably be a
short term trader (even a day trader).
Have a plan and follow it
By having a plan I mean
knowing what triggers a tradable situation, entry levels (and ways to implement
it), trade size, stop loss and take profit orders. Having no plan means you do
not know or understand what you are doing. When you sit down to look at your
charts or analyze securities searching for possible trading opportunities you
have to know what you are looking for. Is it a breakout, bounce off support or
resistance level, touch of a moving average, overbought/oversold situation or
market’s reaction to some fundamental news. You have to know what you do in
each situation: trade, wait or do nothing at all.
Wait for the best opportunities
A lot of traders lose money,
because they trade too much by taking average opportunities that’s why they
have too many bad or average trades. Waiting for those excellent opportunities
provides you with an edge against the crowd. You should learn to skip mediocre
trades till you start noticing the best ones. Impatience is one of the top
enemies that a trader may have. It causes him to overtrade and miss golden
opportunities. When those do finally come most trades are short of capital and
cannot take advantage of them. You have to ask yourself whether you are in this
business for thrilling emotions or for making money. If it is thrills you are
after then better go to casinos. If it is money you are after learn to be
patient and analytic while searching for patterns that do work.
Understand what moves securities you are trading
Why does a stock go up
dramatically or plunges down? Why does Euro rise against US dollar or falls?
What causes gold to rise sharply and then collapse? Some of these are
fundamental questions and you can find clear answers to them. In case of stocks
most probable cause would be earnings, in case of currencies it would be
monetary policies of Central banks, in case of gold it would probably be
inflation. These could be main ones, but not the only ones. In each situation
you will have to dig to find the underlying conditions pushing this or that
market up or down. If you look at a recent collapse in Google stock (18th
of October, 2012) you will find out that it was caused by worse than expected
earnings. The stock plunged around 80 bucks in 10 minutes. In the same fashion
ECB president Mario Draghi announced that he was going to do whatever it takes
to save Euro (on the 25th of July, 2012) and Euro bounced off its
yearly lows and downward trend changed to upward one. I could go and on, but it
is better that you do your own analysis and find what market conditions causes
securities to move sharply.
Respect market but do not be afraid of it
Respect and fear are the
opposites and they produce absolutely different results in trading. Fear blinds
you and takes away your ability to make intelligent decisions. Respecting
market enables you to always be on alert and protective, but also in the
attacking mode when opportunities arise. Although you know that in this game
you can never relax you can never base your decisions on fear. If you are
afraid to execute trades when your system gives you a signal you will never be
successful. Optimism and faith in what you do is an absolute must in any
activity, especially in trading. Nobody pays you a stable salary here.
Everything you make in the markets you do it by taking risks. You have to be
fearless in following your system. It does not mean careless. No, fearless!
Use opportunities to the fullest when you are right
and cut losses when you are wrong
When you are patient and
finally opportunities do come you have to take full advantage of them. Take
much bigger positions then, than you usually do in average opportunities. It
maybe a trade that fulfills all possible requirements with both technical and
fundamental data in place or some other criteria that you follow. When the best
opportunities arise you can increase your account by fifty or even one hundred
percent if you use those situations to the fullest. It often happens when some
tendency becomes clear. I have already mentioned a few of those. When markets
go sideways it is very difficult to make money. Therefore, you should not risk
much in those kind of situations. However, when you see a clear tendency
developing take advantage of that and take a bigger position. What happens if
you find out that you were wrong? You have your insurance – stop loss orders.
That’s what you should always have. When you see that you are wrong cut your
losses and get out of the market. If you are able to fully use one or two of
those best opportunities per year you will be a very, very, very successful
trader.
If you want to make extra money and are ready to trade Forex, futures, indexes and stocks I recommend Etoro.
If you want to make extra money and are ready to trade Forex, futures, indexes and stocks I recommend Etoro.
For living in US: Instaforex
http://instaforex.com/en/index.php?x=FYLC
Have an open mind
Markets change. Some
strategies that used to work no longer do now. However, people remain the same
and they are still controlled by their emotions of fear and greed in trading. Breakouts
may not be working as well as they used to, but they are other ways and
strategies that you can apply and be very successful. Be ready to change
something that used to work, but no longer works. Learn, change, adapt! Always
ask why happens what happens. Search for reasons behind any move. In this way
you will develop your unique approach towards markets. And this will enable you
to make consistent money trading.
Ok. I hope you benefited
from the post. If you liked the post I would also be happy if you gave a plus
on Google+, tweeted, liked it on Facebook and other social platforms. Have a
nice day.
Vytas.
Disclaimer
Trading
financial markets carries a high level of risk, and may not be suitable for all
investors. All information on the blog http://trend0.blogspot.com/ is of educational
nature and cannot be considered as advice, recommendation or signals to trade
in any financial markets.