Well that’s a big claim… I guess I’ll need to live up to it!
Do I know what I’m talking about?
Well I certainly have some serious experience. In fact, unlike most of the article writers I read, I have very actively traded in the markets almost every day for over 30 years… so I think I can bring you a little real world, hands on perspective.
But for all that I am still fallible and the markets certainly find ways to keep me humble and remind me who’s in charge. When you trade for a living you can’t afford to let your ego get in the way of your money.
In my (probably not so humble) opinion the absolute worst mistake you can make as a trader is to have an opinion about market direction, get your ego involved and refuse to change your mind. That is a surefire formula for losses.
So what’s the surefire formula for profits? Learn to take losses… but keep them small!
That’s right! The absolute most important rule of trading in any market is this… if you want to make consistent profits then you’d better learn to take losses. This is way more important than finding the best trading system or arsenal of technical indicators. If you learn to take losses then you have dramatically increased your odds of winning.
So here are a few secrets of successful trading. I’m not going to define any terms here… we don’t have space. Just Google any term you don’t understand.
1. Don’t trade fast choppy markets… your fills will be dreadful.
2. Trade the first hour and the last hour. Usually you can ignore the middle of the trading session… typically not much happens in this time.
3. Cut your losses short… let your profits run! And trade only in the dominant direction of the market that day.
4. Set up a selling rule. Decide how much you can afford to lose on a trade. Never… ever… enter a trade without knowing at what point you’ll be proven wrong. Get out quickly for as small a loss as possible. Don’t sweat the little losses… they’re part of trading. The profits will be much bigger if you keep your losses small.
5. Don’t use a full service broker… the commissions are way too high.
If you’re going to day trade then the transactions costs can eat up all your profits unless you keep them under control. You must keep your transaction costs to the absolute minimum.
6. If you have very deep pockets you can hold trades overnight and beyond but if your capital is limited then don’t take the risk. I used to hold trades overnight when I was first learning this game, but the gap openings against me the next morning quickly cured me of that habit.
7. Don’t buy a falling market… don’t short a rising market. Instead, wait for the trend to reverse and then get on board and place a stop loss order immediately. How do you know it has reversed? You never do for sure… we’re just working on probabilities.
Here’s one technique that works:
Let’s say you always take only long trades. Up moves are characterized by higher highs and lower lows so we want to look for the reversal from short term down move to short term up move. Look for a small up move followed by a pullback that doesn’t break the previous low and then a move above that last high. Quickly take a long position on the breakout (limit orders will save you from a bad fill… these markets often move very fast) and immediately enter an order to sell “on stop” just below that last low. As the price moves up you follow it up with a trailing stop by adjusting the price of your stop loss order.
By: Brian A James
About the Author:
When you’re first starting out it can be helpful to learn from seasoned traders.
Here’s a system from a seasoned Pro that generates buy-sell signals for you.
You can learn about it here:
Currency Buy/Sell Signals – Click Here for Information!
But remember… no matter what system you use… always limit your losses by using stop-loss orders.
