Steps to become a profitable trader

 

I have just re-started my trading journey, after a long absence. I have always loved trading, and just get it.  I did always have substantial profits. But I had always been inconsistent – life, work, and other priorities distracted me.

With WFH, less travel time for work, for going out and other dramas, made me sit down and refined my trading. I know know that I like it and I am good at it.

So, for aspiring traders (those with full time salary positions and cannot trade during work hours), I am sharing the steps to become a profitable trader.

From my experience, to be a good trader, one needs to possess these qualities:

  1. A good positive communication with one’s inner self. One’s surrounding (home, whatever one’s definition of home is) should be peaceful – conducive to one’s quest to excellent (mastery) in any subject
  2. Trading edge (the system that works for you)
  3. Risk management
  4. Money management
  5. Trade management
  6. Have a good compliant, liquid, large online broker that will protect your money
  7. Psyche management

Firstly (very important), trading should not be used as a boasting point. It should be not sought as a reason to compensate lack(s) in other area(s). Trading should be an outlet of skill and enjoyment that makes money. One’s surrounding should also be peaceful, enabling the trader to study the market, plan, execute and then review the trades, in order to earn increasingly better profits. One’s surrounding (home) should not be a distraction (worse, an energy drainer) that takes one’s away from devoting time & energy into mastering one’s trades.

Like Warren Buffet said, get rid of the thing that destructs you. Once done, thrive.

Secondly, one must have found a trading edge – a strategy that works. This is the utmost basic need for anyone contemplating at the slightest to become a trader. Test, and test, and test, and test your strategy. Refine it after each test. Have the background, the underlying knowledge, of this strategy and know know it.
I believe from my observations that any aspiring traders know the entry and exit targets. Most however fail in having the edge (the stop loss placements, the knowing of the market movements, the thorough understanding of the background knowledge of the strategy, and etc.) that enable traders to profit.

In one’s trading edge, I think traders ought to:

  • have the entry and exit targets solidly
    • always have updated s/r levels before placements
    • compare the targeted s/r levels to the previous similar levels in terms of weight and taking into account potential momentum at play
  • smart stop loss placements, in consideration of good R:R
    • enter at a safe level above s/r level
    • stop loss strategically at a safe level below s/r level
  • concentrate on 1 thing. this can be anything, e.g. concentrate only on trading index, or only on XJO, or only breakout. Whatever it is, I believe anyone will excel if they focus.
  • know know the movements of their market (I believe traders need to specialize in 1 focus for example some focus only on XJO, some focus only in buying dips and sell when it’s high, etc.) That way the traders will know know the specific market movements
  • discipline – discipline isn’t based on will power, restrained emotions, or ability to execute plans, because they on their own aren’t sufficient to make human (emotional) beings to be discipline. Discipline is ensured through a series of automated systems that enables traders to execute their plans. For example, have a strategy to circumvent itchy fingers – go out & run(exercise).
  • review review review review! bettering themselves – their trades, all the time.
  • ultimately, focus only in perfecting their trades, inevitably the money follows.

I strongly believe aspiring traders are distinguished by their lack in risk & money management, from the profitable traders. The next two steps are crucial.

Risk management

  • having a good capital is good.
    • but that should not be one’s reason to feed onto a bad trade.
  • position sizing – my strategy is created to be foolproof so I cannot comment on position sizing. But common sense still rules, if the signals aren’t as perfect, less position or don’t enter at all. If the signals are so strong and even better, have additional brownie points – enter & double the position size!
  • SL should be respected, and if it’s still good, only then re-enter.

Trade management

I believe traders have a gut feel of trade direction, entry & exit level, and market movement. But, profitable traders can manage these movements to earn profit. 

Through self discipline, one will master  the  movement of the instrument that one has specifically chosen to master. From there, one will master the trade management – simply, securing profits. 

Money management

  • have back up money for black swan events – this could be the keys to double/triple money
  • allocate lot size smartly – this decision can boost profit significantly and kill you at the same time

Once a trader, who has discovered their edge & mastered their inner self & surroundings, went on to master  risk and money management; they will become increasingly profitable traders. The process can take several months to several years. And what I learned, the best lesson is learned from learning others’ mistakes and developing a well proven path to be a profitable trader.

 

Last step, I strongly believe in having a good broker. They are the one that keeps your hard earned profits, so having a good one (not necessarily cheap one, because often you get what you pay for..) is crucial.

A good broker is the one that is

  •  compliant – that won’t touch – access and use – your capital,
    • some very well promoted online brokers (they often are cheap), once checking their compliance at ASIC (Australia), FINRA (US) or FCA (UK) aren’t that compliant.  The ones I did check, per the reports, these brokers had accessed and used their clients’ (that means, us – our) equity – our hard earned money, hard earned profits.
    • Note: these not so compliant brokers are dirt cheap – their spreads are tight, their fees are low, etc.
    • But, the risk of them accessing (and potentially using) your hard earned profits, is there!
    • Also, they might not be large enough or liquid enough to have good customer service – to answer your questions/queries promptly. And, in trading, prompt (this means right away) answers is critical.
  • a broker that is large enough – that has large liquidity to sustain black swan events
    • some broker are so small that they had insufficient equity to sustain members’ blown up accounts – remember the decoupling of CHF ages ago that blew a couple broker down
    • any trader avoids their hard earned money to be blown up – temporarily or not – by a going down trader
    • Bear in mind;
      • Our saving is protected by government up to 250K
      • But our money in some trading accounts aren’t
      • So be careful
  • will protect your hard earned money by being compliant, having large enough liquidity

I believe in paying fairly for a good quality service and products – so that my mind is at peace, so that my hard earned money & profits are protected. And I recommend IG.

IG has:

  • a good – advanced, easy to use – platform,
  • when I checked in ASIC, FINRA and FCA was compliant,
  • has a good (prompt & bonus, polite) customer service,
  • diverse options –
    • they have worldwide stocks/shares
    • they have crypto
    • they have indices
    • they have commodities
  • and most importantly, if you want to trade something that they don’t have, you can call and request it!

So, to do so, check this link. Because your hard earned money deserves the best protection.

Psyche management

Whether you had made a lot of profits, or losses, the next trade to be entered is a brand new trade.

Your pscyche must remain:

  • calm
  • unemotional
  • focussed – will this be a surely (100%) safe (won’t have pesky wicks that reverses) profitable trade?
    • note: It is a lot better to have a trade with less pips but that is going to be surely definitely 100% profitable trade, than a trade with 90% probability to be a profitable trade
  • analytical –
    • what is the current situation,
    • what is the entry, where is the R1, where is the R2, where are the safe levels, what are their weights,
    • what is the current momentum,
    • what are ahead – news wise (economic, company, and other type of news that will affect the market),
    • what are the safety precautions, what time zone are we in now – what is the impact on the market, where am I going to enter, when am I going to enter, where are my notes, have I set alert, etc
  • shrewd – I am profitable, I will make profits

I learn if we are physically exhausted – from working/trading too much, losses, profits, even brain fog from cold/hay fever! – avoid trading.

Only trade, when physic, mental is 100%.