Are you navigating a 9-to-5 work schedule while harboring dreams of becoming a successful trader? Let's embark on a rapid-fire journey through the world of trading styles in just three minutes.
Start with Your WHY - Embarking on a trading career should always commence with a simple but profound question: why do you want to be a trader? As the famous saying goes, "If the Why is big enough, the How becomes easy." Consider your trading goals within the framework of the 5Ws + 1H:
Why do you want to improve?
Who will be involved?
What are your goals?
When do you plan to achieve them?
Where will you operate?
How will you achieve your goals?
Know Your Biases - Recognize that your emotions and learned behaviors can influence your financial decisions. Behavioral economics tells us that traders often exhibit loss aversion tendencies, leading to irrational decisions in a bid to avoid losses.
No Guarantees, Just Prepare for Losses - It's crucial to understand that in the trading world, profits are never guaranteed, but losses are a part of the journey. There is no magic formula that ensures constant success. No matter which path you choose, always be prepared for the occasional setback.
Pick Your Trading Style - Traders usually opt for one of four main tactics:
Trend-following
Mean reversion
Chart pattern recognition
Exogenous signals
For each strategy, you'll need to define six key system factors:
Markets (what you'll trade)
Position sizing (how much to trade)
Entries (timing your trades)
Exits (knowing when to exit a winning position)
Stops (deciding when to exit a losing position)
Tactics (how to execute trades)
Choose Your Trading Strategy - Based on your financial situation, time availability, goals, personality, and available resources, you'll select an overarching trading strategy:
Buy-and-Hold
Position Trading
Swing Trading
Day Trading
**Scalping
Opt for a single style that resonates with your unique circumstances. While buy-and-hold is a conservative choice, traders can potentially outperform the market with the help of technical tools and risk control. A general rule of thumb is not to risk more than 2% of your trading account at any given time.
Follow the Trend - Positioning your trades in the direction of a prevailing trend can be the most profitable strategy. Even if your win rate is lower, your wins can compensate for the occasional losses. You have two options:
Many small wins + few large losses (range)
Many small losses + few large wins (trend)
Confirm Your Moves - When buying breakouts in an uptrend or selling breakdowns in a downtrend, ensure that these breakouts are verified and filtered through techniques such as percentage filters, volume, timeframes, or volatility.
Final Steps - Most traders excel when they select just one trading style. Remember the following steps:
Define your trading goals
Acknowledge that losses are part of the trading game
Define your trading strategy
Create a systematic trading plan
Choose your trading techniques
Limit your risk to 2% per trade
Decide whether you prefer buy-and-hold or position trading
Develop the discipline required for trading success
And there you have it—your shortcut to discovering your ideal trading plan. Happy trading, and may your financial journey be prosperous and fulfilling! 📈💰
