The Secrets of Successful Trading and Investing

Trading and Investing seems quite simple at the outset. Novice traders frequently jump into a trade without a plan or strategy and just hope for the best. Strategically and mentally they are unprepared to manage risk and deal with uncertainty. Novice traders are rarely able to handle uncertainty efficiently. If a trading position goes against them, showing an unrealized loss, most traders will hang on to the position, hoping that the position will eventually recover. This strategy will result frequently in large losses from which it is quite difficult to recover. If a trading position goes in their favour, most traders will tend to grab small profits quickly as they fear the profits will disappear again and will thus quite often miss out on a major move. The beginner thus tends to let losses run and cut profits short.

Successful traders are aware of this inbuilt psychological deficiency to manage risk and uncertainty and have developed a trading plan to overcome these psychological pitfalls. They have developed a trading plan which allows them to do just the opposite of what their gut feeling tells them to do. They use the trading plan as a crutch to cut losses short and let profits run.

A trading plan has to answer a series of questions:

<          How do I determine a trend?

<         Under what conditions do I enter a market?

<         At what stage do I abandon a losing position with a manageable loss?

<         How do I take profits?

<          How much do I risk per position and how do I diversify to withstand an inevitable series of losing trades?

<          How do I stay disciplined and apply my trading strategy consistently through good and bad trading conditions?

The trading plan has to be historically tested to ascertain that it has positive statistical expectancy, meaning, is it profitable over the long run. This can be done relatively easily without risking any real money.

In order to become a successful trader or investor you will have to start educating yourself and develop and test such a trading plan. This requires a significant amount of time and expertise with no guarantee of eventual success. Alternatively, you can enlist the help of an educator with experience in the markets who has already done the hard work for you and will thus be able to cut short your learning experience and get you on the path of success faster.

Most brokers are ‘execution only’ and do not provide any advice, nor education. Every trader will need a broker to execute their trades and as such it is important that you find a broker who not only executes your orders efficiently but is also willing to hold you by the hand and to educate you. You should be able to rely on his experience to develop a trading strategy that is just right for you and receive daily trading advice with precise entry and exit points and other support services. This education, advice and support should not come at an extra charge (some educators will charge
$5000 + for a training course) but should be included in the brokerage rate you pay.