Managing trading risks is an important aspect of successful trading. Here are some steps you can take to manage trading risks:

1. Set Stop Losses: A stop-loss order is an order placed with a broker to sell a security when it reaches a certain price. Setting stop losses is an effective way to limit potential losses and protect profits.
2. Diversify Your Portfolio: Diversifying your portfolio means spreading your investments across different assets and markets. This helps to reduce risk and protect against losses in any one area.
3. Use Risk Management Tools: There are many risk management tools available to traders, such as options, futures, and exchange-traded funds (ETFs). These tools can be used to hedge against potential losses.
4. Have a Trading Plan: A trading plan outlines your objectives, strategies, and risk tolerance. Having a trading plan helps to keep you focused and disciplined, and reduces the likelihood of making impulsive trades.
5. Stay Informed: Keeping up-to-date with market news and events can help you anticipate potential risks and take appropriate action.
6. Manage Your Emotions: Fear and greed can often lead to irrational trading decisions. It’s important to manage your emotions and avoid making trades based on emotions rather than sound analysis.
7. Practice Proper Position Sizing: Position sizing refers to the amount of capital allocated to each trade. Proper position sizing helps to limit potential losses and ensure that you don’t risk too much on any one trade.

Remember, no trading strategy is 100% foolproof, and there is always a risk involved in trading. However, by following these steps, you can manage your risks effectively and increase your chances of success

In financial trading, a supply zone refers to a price level or area where selling pressure has historically been strong and has caused prices to decline. Traders use supply zones to identify areas where selling may occur in the future, and to make trading decisions based on this information.

Similarly, a demand zone refers to a price level or area where buying pressure has historically been strong and has caused prices to rise. Traders use demand zones to identify areas where buying may occur in the future, and to make trading decisions based on this information.

Trading zones, on the other hand, refer to areas where there is significant trading activity occurring. These zones can be either supply or demand zones, or they can be areas where both buying and selling are occurring. Traders may use trading zones to identify areas of potential support or resistance, where prices may be more likely to move in one direction or the other based on the balance of buying and selling activity.

In summary, supply and demand zones are used to identify areas where buying or selling pressure may occur in the future, while trading zones are used to identify areas of significant trading activity.

The Fear of Missing Out (FOMO) is a common psychological phenomenon that can occur in trading. FOMO can cause traders to make impulsive decisions based on the fear of missing out on potential gains, even if those decisions go against their better judgment and risk management strategies.

FOMO can lead traders to enter trades at the wrong time or to hold onto positions longer than they should, leading to losses or missed opportunities. To combat FOMO in trading, it is important to have a well-defined trading plan and to stick to it. Traders should also have a clear understanding of their risk tolerance and set stop-loss orders to limit potential losses.

It is also helpful to maintain a long-term perspective and not get caught up in short-term fluctuations or hype. Traders should focus on their own goals and strategies rather than trying to keep up with the actions of others in the market.

Overall, FOMO can be a difficult emotion to overcome, but with discipline, patience, and a focus on long-term success, traders can minimize the impact of FOMO on their trading decisions.

Understanding probabilities is crucial for successful option trading. Options trading involves buying and selling contracts that give the owner the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date. When trading options, the outcome of the trade depends on the movement of the underlying asset and the probability of the underlying asset reaching a certain price or staying within a certain range.

Here are some reasons why understanding probabilities is important in option trading:

1. Risk management: Understanding probabilities can help traders manage risk by assessing the likelihood of an option expiring in the money or out of the money. This information can help traders determine the appropriate position size, stop loss level, and risk-reward ratio.
2. Position selection: Traders can use probabilities to identify the most attractive options positions. For example, traders can evaluate the probability of a particular stock moving a certain amount in a certain direction within a specific timeframe to determine which options positions have the highest probability of success.
3. Portfolio management: Understanding probabilities can also help traders manage their overall options portfolio. By diversifying positions across different stocks and timeframes with varying probabilities, traders can create a more balanced and diversified portfolio.
4. Trade analysis: Finally, understanding probabilities can help traders evaluate the success of their trades. Traders can compare the actual outcome of their trades to the expected probability to identify strengths and weaknesses in their trading strategies.

In conclusion, understanding probabilities is a critical component of successful option trading. By using probability analysis, traders can manage risk, select the best options positions, and create a well-diversified portfolio. It’s important to do your research and understand the risks involved before getting started, and it’s always a good idea to consult with a financial advisor or professional before making any investment decisions.

Trading strategies and behavioral biases are closely interconnected. Behavioral biases refer to the systematic errors or deviations from rational decision-making that can influence traders’ decision-making processes. These biases can often lead to suboptimal trading decisions that can result in losses or missed opportunities. Trading strategies, on the other hand, are systematic approaches used by traders to identify profitable trading opportunities and manage risk.

Some common behavioral biases that can impact trading strategies include:

1. Confirmation Bias: The tendency to seek out information that confirms pre-existing beliefs and ignore information that contradicts them. This bias can lead traders to overestimate the accuracy of their trading strategies and overlook important market signals that suggest a change in direction.
2. Overconfidence Bias: The tendency to overestimate one’s abilities and believe that success is more likely than it actually is. This can lead traders to take excessive risks and make overly optimistic trading decisions.
3. Loss Aversion Bias: The tendency to feel the pain of losses more strongly than the pleasure of gains. This can lead traders to hold onto losing positions for too long, hoping that the market will turn in their favor.
4. Anchoring Bias: The tendency to rely too heavily on the first piece of information received when making a decision. This can lead traders to place too much emphasis on past price levels or trends when making trading decisions, even if they are no longer relevant.

Trading strategies can be designed to mitigate the impact of these biases by incorporating risk management techniques and using data-driven approaches. For example, traders can use technical analysis to identify key support and resistance levels and use stop-loss orders to limit losses if the market moves against them. They can also use fundamental analysis to assess the underlying value of a security and determine if it is undervalued or overvalued.

Overall, understanding the impact of behavioral biases on trading strategies is essential for successful trading. Traders who are aware of these biases can take steps to mitigate their impact and improve their trading performance over time.

Option trading can be an emotionally charged experience. Here are some common emotions that we traders may experience when trading options:

1. Fear: Fear is a common emotion that traders experience when trading options. Traders may be afraid of losing money or making the wrong decision, which can cause them to hesitate or avoid making a trade altogether.
2. Greed: Greed can also be a driving force for traders. Traders may be tempted to take on excessive risk in order to earn higher profits, which can lead to poor decision-making and ultimately losses.
3. Frustration: Options trading can be complex and difficult to understand, which can lead to frustration for traders who may feel overwhelmed or confused.
4. Regret: Traders may experience regret if they make a trade that results in a loss or miss an opportunity to make a profitable trade.
5. Excitement: Trading options can be exciting, especially when a trade is profitable. However, traders must be careful not to let their emotions cloud their judgment and lead to impulsive decision-making.

To be successful in options trading, it is important for traders to be aware of their emotions and manage them effectively. This may involve setting realistic goals, establishing a trading plan, and sticking to a predetermined risk management strategy

A long straddle is an options trading strategy that involves buying a call option and a put option on the same underlying asset, with the same expiration date and at the same strike price. The strategy is designed to profit from a significant move in the price of the underlying asset, regardless of whether it goes up or down.

The long straddle strategy is typically used when an investor expects a big price move in the underlying asset, but is uncertain about the direction of that move. By buying both a call option and a put option, the investor has the potential to profit from either a rise or a fall in the underlying asset’s price.

If the price of the underlying asset increases, the investor will profit from the call option, while the put option will expire worthless. If the price of the underlying asset decreases, the investor will profit from the put option, while the call option will expire worthless. If the price of the underlying asset remains relatively unchanged, both options will expire worthless.

It’s important to note that a long straddle is a high-risk strategy because it requires a significant price movement in order to be profitable. As a result, it is typically used by experienced options traders who are comfortable taking on higher levels of risk in exchange for the potential for higher returns. Additionally, since the investor is buying both a call option and a put option, the cost of the strategy can be high, which means that the price of the underlying asset needs to move significantly in order to generate a profit.Regenerate response

Backtesting a trading strategy involves testing the effectiveness of a trading strategy based on historical market data to see if it would have been profitable in the past. The process involves applying the rules of the trading strategy to historical data to simulate how the strategy would have performed over time.

To backtest a trading strategy, you need to follow these steps:

1. Define your trading strategy: Define your entry and exit rules, risk management rules, and other important parameters that will guide your trading decisions.
2. Obtain historical market data: You need to obtain historical market data for the period you want to test your strategy on. This data can be obtained from a variety of sources, including financial data providers and online trading platforms.
3. Apply your strategy to the historical data: Apply the rules of your trading strategy to the historical data to simulate how the strategy would have performed over time. This can be done manually or by using backtesting software.
4. Analyze the results: Once you have applied your strategy to the historical data, analyze the results to determine if the strategy would have been profitable in the past. You can use performance metrics such as the total return, average return, maximum drawdown, and other indicators to evaluate the effectiveness of the strategy.
5. Refine and optimize the strategy: Based on the results of the backtest, you may need to refine and optimize your strategy to improve its performance. This could involve adjusting the entry and exit rules, risk management rules, or other parameters to maximize profits and minimize losses.

It is important to note that backtesting is not a guarantee of future performance, as market conditions can change and past performance is not always indicative of future results. However, backtesting can be a valuable tool for evaluating the effectiveness of a trading strategy and identifying potential areas for improvement.

Win Loss Ratio: The win-loss ratio is a measure used by traders to evaluate the profitability of their trades. It is calculated by dividing the number of winning trades by the number of losing trades over a specific period.

For example, if a trader had 10 winning trades and 5 losing trades over a month, their win-loss ratio would be 2:1 or 67%.

A high win-loss ratio indicates that a trader is generating more profits than losses, which is generally considered a good sign. However, it’s important to note that the win-loss ratio should be evaluated in conjunction with other performance metrics, such as the average profit per trade and the overall trading volume.

A trader with a high win-loss ratio but small profits per trade may not be generating enough revenue to justify the risks involved in trading. Conversely, a trader with a low win-loss ratio may still be profitable if they are able to generate large profits on their winning trades and minimize their losses on losing trades.

Ultimately, the win-loss ratio is just one metric among many that traders use to evaluate their performance and make informed decisions about their trading strategy.

Risk Reward Ratio: The risk-reward ratio is a measure used by traders to evaluate the potential profitability of a trade relative to its associated risk. It is calculated by dividing the expected profit from a trade by the expected loss if the trade is unsuccessful.

For example, if a trader enters a trade with a potential profit of $500 and a potential loss of $100, their risk-reward ratio would be 5:1, or 5.

A high risk-reward ratio indicates that a trader has the potential to generate significant profits relative to the amount of risk they are taking on. However, it’s important to note that a high risk-reward ratio does not guarantee success, as there is always a possibility that the trade will not go as expected.

Traders typically look for trades with a risk-reward ratio of at least 1:2, which means that the potential profit is at least twice as large as the potential loss. This allows traders to potentially generate profits even if they are only successful in a minority of their trades.

It’s important to note that the risk-reward ratio should be evaluated in conjunction with other performance metrics, such as the win-loss ratio and the overall trading volume. A trader with a high risk-reward ratio but a low win-loss ratio may not be generating enough profits to justify the risks involved in trading.

Ultimately, the risk-reward ratio is just one metric among many that traders use to evaluate their performance and make informed decisions about their trading strategy

Max Draw Downs: Max drawdowns refer to the maximum percentage loss that a trader experiences from their highest equity point to the subsequent lowest equity point. It measures the largest drop in a trader’s account balance over a particular period.

For example, if a trader’s account had a balance of $10,000 at its highest point and then fell to $8,000, the max drawdown would be 20%.

Max drawdowns are an important metric for traders to consider because they represent the potential risk of their trading strategy. A trader with a high max drawdown is likely to experience significant losses during a market downturn, which can be difficult to recover from.

Traders typically look to minimize their max drawdowns by using risk management techniques such as stop-loss orders and position sizing. By limiting the amount of capital they risk on any single trade, traders can reduce the potential impact of a losing trade on their overall portfolio.

It’s important to note that a low max drawdown does not guarantee success in trading, and traders should evaluate this metric in conjunction with other performance metrics such as the win-loss ratio and the risk-reward ratio.

Overall, max drawdowns are an important consideration for traders looking to manage risk and maximize the potential for long-term success in the financial markets.

Stop Losses

Stop losses are a risk management technique used in investing and trading to limit potential losses. A stop loss is an order placed with a broker or exchange to sell a security or other asset once it reaches a certain price. The purpose of a stop loss is to limit the potential loss on a position if the price moves against the investor or trader.

For example, if an investor buys a stock at $50 and sets a stop loss at $45, if the price of the stock drops to $45 or below, the stop loss will trigger and the position will be sold automatically, limiting the potential loss to $5 per share.

Stop losses can be useful in helping to manage risk, but it’s important to remember that they are not foolproof and can’t guarantee that losses will be limited to a specific amount. Market conditions can change rapidly, and prices can gap down or move quickly, which can cause a stop loss order to be filled at a price that’s lower than expected.

It’s important to use stop losses in conjunction with other risk management techniques and to always monitor positions closely to ensure that they are performing as expected.

Source: The Enlightened Trader

Once upon a time I experienced anxiety and stress every time I took a trade. I had trouble sleeping and I found myself regularly checking my positions and second guessing myself constantly. But that was a long time ago now. In this article I want to share that trading should not bring anxiety or stress into your life. So how did I eliminate anxiety from my trading? I implemented 4 simple changes which anyone can adopt:

1. Position Size: must be small enough to allow you to sleep well
2. Worst Case Drawdown: must be within your tolerance
3. Timeframe & Market Selection: should fit your lifestyle so it is easy and natural
4. Trading System Confidence: back tested and fully understood

Let’s look at each in turn.

Position Size

It is so tempting to think that we have to be aggressive to make the big profits. After all, when we take a small position we can only make a small profit right? Unfortunately this thinking is backwards. Profitable trading is about preserving capital first and foremost. You should always ensure you don’t lose big when you are wrong on a trade. Here is the reason:

As the graphic shows, once you have a big drawdown it is very hard to recover.

When you think about profit first, your impulse is size your positions larger because you WANT profit. But as soon as your position moves against you this quickly turns to fear and anxiety.

Instead think about potential losses and risk first, then you will naturally size your positions smaller because you DON’T WANT losses. Each trade should be sized from a mindset of caution rather than aggression. Your anxiety will fall because your losing trades are not big enough to hurt you.

Worst Case Drawdown

A second major cause of anxiety in trading is the knowledge (or fear) that your worst case drawdown could be far bigger than you are willing to tolerate. I have found this can be a constant cause of low level anxiety which rapidly escalates when the market moves against you.

Setting your worst case drawdown is critical because your worst outcome can be VERY BAD if you are not careful. If you use high levels of leverage, multiple correlated positions and aggressive position sizing, your worst case drawdown could wipe out your entire account (or worse!)

I eliminated this source of anxiety by deciding how much of my account I was really willing to lose in the worst case scenario. I then reduced my leverage and total risk limits to fit achieve this goal. My anxiety dropped immediately on completing this change and yours will too.

Timeframe and Market Selection

A third major cause of anxiety can be a mismatch between your personal situation and your timeframe / market choice. I have two personal examples of this:

The first was when I tried day trading early in my trading career when I still had a ‘normal’ job. It might sound obvious, but to day trade you need to be focused on the markets throughout the day. If you are trying to do a job and day trade at the same time, something is going to suffer. In my case both my job and my trading suffered. DON’T DO IT.

The second personal example was when I tried to trade across too many time zones. I primarily trade stocks and I was looking for some diversification. I have developed a really great trend trading system which works on pretty much any stock market globally, so I had a lot of choices.

I was trading stocks on the Australian stock exchange, Hong Kong and the US markets. While each of these only took about 15 minutes of my time each day, my trading system requires me to be at the computer at each market open — this meant late nights and early mornings.

What is the point of being free if you have to be at the computer late at night AND early in the morning? That is not freedom at all!

So I rationalised the markets I was trading into more convenient time zones — again my levels of anxiety and stress dropped immediately.

Trading System Confidence

The fourth area that I have found really drives anxiety is confidence in your trading system . I have tried many trading systems so I know first-hand how this affects me.

One of the mistakes I made early on was thinking that if a trading strategy was published in a book then it should be credible and actually work — WRONG!

Any time I tried a method without fully testing it myself I found my confidence faltered and anxiety set in. But if I had fully back tested the system and understood how and why it worked then my confidence holds up and anxiety remains low.

Fully back testing a trading system is beyond the scope of this article, but the important lesson is this: Regardless of who published the system, no matter how good their credentials, no matter how compelling the data you MUST TEST IT FOR YOURSELF FIRST! If you don’t then you will suffer from anxiety because of the uncertainty you have. Plus you will probably make mistakes and lose money.

Conclusion

Anxiety and stress are a common part of many trader’s lives, but they don’t need to be. Addressing some common issues such as position size, worst case drawdown, timeframe / market selection and testing to get confidence in your trading system will go a long way towards eliminating these negative feelings.

Source: Zerodha Varsity

Novice traders often report that they have difficulty sticking with their trading plan. There are many possible reasons. A common issue is not having a clearly defined plan. When a trading plan is not clearly defined, it is hard to follow and easy to abandon. When you trade by the seat of your pants, even just a little bit, you can panic at the wrong moment.

You may be prone to over-thinking your plan or you may become easily consumed with self-doubt. When you clearly define a plan, in contrast, you can implement it more automatically. You can enter and exit more effortlessly. Many novice traders say, however, that even when they painstakingly delineate a trading plan, they still have difficulty following it. Depending on your personality, you may or may not have difficulty maintaining control and discipline.

People who are controlled and disciplined in everyday life, ironically, tend to have trouble sticking with trading plans. Disciplined people are rule followers, and research studies have shown that rule-followers prefer certainty. However, anyone who has traded the markets for a few months soon realizes that the markets are not certain, and conventional wisdom is not consistently valid.

It is only true when it is, and the rest of the time it is wrong. As it turns out, people who are more impulsive in everyday life have less difficulty following a trading plan. They view trading as a “game” and they enjoy risk. These kinds of people truly don’t care what happens. They have a natural, carefree attitude when it comes to trading. In a sense, they just don’t care. They can easily think, “Why not follow a plan? It doesn’t matter if it goes awry.” This kind of thinking is useful for a trader.

Most traders, however, have trouble approaching trading with a carefree attitude. For example, they may see the price rise initially. But then it stalls before reaching the predefined exit point. They instinctively think, “How much longer can it go up? There aren’t enough buyers. I can’t wait. I’ve got to sell and lock in my profits right now.” When they get to that point, they start thinking, “Don’t be greedy.

How can it be a bad thing to get out early and get a profit?” At that point, it’s hard to stay in the trade. But it is vital for economic success to stick with the plan. It is a matter of simple mathematics. Although there may be several profitable trade setups out there, finding one is relatively rare. You’ll see many more setups that don’t pan out than actually do. When you hit upon one, you must capitalize on it, and maximize your profits, getting as much out of the trade as possible. Otherwise, over the long run, your winners won’t balance out your losers.

If you are a natural-born risk taker, sticking with your plan is less difficult. Risk-takers get a rush from the trade and can’t wait to see what happens. The psychological rush is more enjoyable, in some ways than the outcome. Most people, however, are naturally worried about the outcome of their trades and a little cautious voice nags them to get out of a trade before it comes to fruition. How do you quiet the voice of caution? It’s hard. Some traders have suggested trading while tired or dazed, so that only a fixed amount of energy is left to both foci on the cautious voice and trading, so in the end, you just automatically trade the plan.

The idea is to lower one’s inhibitions so that that he or she just follows the plan without thinking. It’s the right idea, but it is hard to implement. Some people may be able to trade while tired and dazed, but it is more likely that such a strategy will produce impulsive decisions in most people. It is probably wiser to be rested so that you can concentrate and quiet the little voice that nags you to get out of a trade.

Perhaps the best thing you can do is to manage risk. If the outcome of the trade truly doesn’t matter, then you won’t worry as much and can stick with your trading plan. Once you are rested, can concentrate, and you have relatively little to lose, you can try to cultivate the proper mindset of the winning trader. Winning traders view trading as a game, much like how a person plays a videogame. They think, “I’m just trading for fun.” They look at a trade and think, “I want to see if it reaches the exit point or not.

It is more important to find out than anything else.” They enjoy the game. They are a student of the markets. The learning experience is more important than the outcome. Winning traders are not only players of the game, but observers. They know how to look at the market action, even while in it, objectively, and it is more important to see what happens and gain experience than merely winning. If you can cultivate such an attitude, you’ll be able to follow your trading plan and silence the voice of self-doubt that often thwarts your trading efforts.

Source: New Trader Ru

A price action trading system is a process for using new price data to make buy and sell decisions on a watch list of markets. A price action trading system attempts to use entry and exit signals that have an edge by creating good risk/reward ratios that lead to profitable trading. There are five primary components in a trading system.

1. You will need a watch list, depending on what markets you trade this list could be futures, Forex pairs, ETFs, or stocks. The items on your watch list should have good liquidity that creates tight bid/ask spreads that limit slippage. Your watch list can be filtered using fundamentals but should only be traded using price action. It is a good practice to trade markets that historically has had good trends in the past and consistent repeatable price patterns over the long term
   
2. You need to backtest your watch list and study the historical price action patterns to find signals that have created good risk/reward ratios in the past. This means when you enter a trade your initial stop losses being triggered will create a small loss if the trade doesn’t work out, but your trailing stop and/or profit target will create a big win if it does.
   
3. To manage the size of your drawdowns and eliminate your risk of ruin you will have to set guidelines for position sizing based on historical and implied volatility of the market you are trading. Also you have to consider the correlation of your positions and set parameters of how many open positions you can have if they move together or diversified.
   
4. A good trading system can have diversified signals for trends, swings, and dip buying. This can help smooth the equity curve through different market environments.
   
5. The trading system you choose to use must fit your own personal tolerance of risk and have the potential of meeting your return goals. You have to understand your edge and believe in the trading principles that will make your system profitable over the long term. You have to be able to mentally and emotionally deal with the inevitable drawdown that it will have when a market environment changes and have the perseverance and patience to trade it with discipline over the long term to achieve profitability.

Source: Profitable Trader

I began trading 14 years ago in 2008. I began trading with commodities. I was neither successful nor a failure. I used to earn profits and lose them subsequently. This went on for three years upto 2011. Then I switched over to equity and futures. Again I could not make consistent profits. It was then that I came across Options. This time I decided not to plunge imediately to trade in options. Instead I meticulously went about learning options, created my own strategies and tested them and then I started doing forward trades – Paper trades. Simultaneously I began to read a lot about how to be a consistently profitable trader. This helped me a lot in controlling my emotions, greed and fear. After that there has been no turning back. I now consistently make profits. This does not mean that I have no losing trades. I have losing trades too and sometimes it is frequent. But now I control my emotions and never deviate from my trading plan. I trade like a computer. I never look at the profits or losses but just see that I follow the trading plan and never deviate from it.

Source: Investopedia

When you begin trading, there are a lot of questions. With all the information out there it can be hard to decide where to start. Setting goals can help, but often novice traders set the wrong type of goals. As a novice trader your initial goals should help you eventually make money, but making money should not be your goal. Instead, opt to make your initial goals about the process and emulating traits of professional traders.

KEY TAKEAWAYS

• Traders new to the world of finance can benefit greatly from setting specific goals for themselves that they hope to accomplish in a set period of time, rather than focusing on a specific dollar amount.
• Focusing on the process of trading, including strategies and structures you’ve set in place for yourself, regardless of results, can be more effective than giving up on a strategy too soon.
• All trades a novice trader makes should be the result of a well-thought-out plan that includes how trades will be entered and exited and how the money will be managed.
• Part of being prepared, knowledgeable, and strategic as a trader involves knowing when not to trade, when to sit it out, and when to wait for a better opportunity.
• Avoiding needless complexities in favor of a simple, straightforward plan is usually best, particularly for trading neophytes.

Make Your Goals About Process, Not Results

Initially, traders want to make goals about numbers: “I will make 1% per day on my $30,000 capital,” or “I will make 30% per year.” While it seems simple, to actually get to a certain percentage or to reach dollar targets, you will need to refine your market approach and hone your discipline. By plunging into the market and expecting to make a certain amount of money, the goal becomes almost impossible to reach over the long term. These types of goals require the trader to truly understand the capabilities (and limitations) of the trading plan they are employing, not just think they understand.

Based on the method being used, it may be impossible to reach a dollar or percentage goal, but it still could be valid and provide a good return. Therefore, the trader must either abandon the strategy or deviate from it in an attempt to find more yields. For many traders, this becomes an endless cycle of abandoning strategy after strategy. Looking at charts in hindsight makes trading look easy, but those who trade know it is harder than it looks. Novice traders must not only become knowledgeable about the markets, but also about themselves.

Just like any other business, to become a good trader you must focus on a solid process. Results will not come instantly. Most businesses require quite a bit of time before profits are made, and many businesses fail completely. Trading is no different. Without understanding how the markets truly work and developing a winning process, the results are based on chance, not skill.

Always Have a Plan

In business school, you are taught that to start a business you need a business plan. Trading is a business. Therefore, every time you trade you must be trading according to a well-thought-out and calculated plan.

The plan should include how trades will be entered and exited and how money will be managed. The plan should be very detailed, outlining the markets that will be traded, risk parameters, if filters will be used on trade signals, what constitutes a trade and exit signal, position size, what market environments will be traded, and how that will be determined, such as ranges or trends.

Therefore, the goal here is to create a complete plan before making another trade.

Learn Not to Trade

Especially when a specific dollar amount is the goal, traders will push to achieve that goal, even when opportunities are not present. The market does not present statistically probable trading opportunities at all times, often you will be far better off sitting on your hands or watching TV than trading. This does not sit well with most people; they want to continually be doing something. In the markets, this can slowly (or quickly) erode the profits that came during good trading times.

Trading during slow times or making impulsive trades outside the scope of the plan is such a common issue that it deserves special attention. Make one of your goals to be as disciplined as possible, only making trades that are outlined in the plan.

Keep It Simple

A complex strategy can be very alluring. Many people believe because something is complex it is more likely to work. Avoid getting too fancy with your analysis and trading strategies or making a winning trading plan more complex — usually this only results in destroying the profitability of it. If you like the stock market, stick with trading stocks. If you like currencies, then trade FOREX. Focus on only one market and a couple of simple strategies when starting out.

The goal here is to avoid constant tinkering to improve performance, or continuously switching markets, strategies, or analysis methods. Stick to the plan. If it occasionally needs to be reworked a bit that is fine, but keep the revisions simple and avoid getting overly complex.

The Bottom Line

When starting out, be a niche trader focused on a few manageable goals. Results will come in time if you are trading according to a trading plan, not trading when there are no opportunities, and avoiding getting too complex.

Source: Trading View

As your time spent with the market increases, you start to discover things about the nature of the trading game. Why they say its simple not easy. Why do 95% of traders end up losing money? Why is consistency so difficult to achieve? Can I even make consistent profits? Only after going through huge drawdowns, it gets embedded within your psyche. You realize that only you are to blame. Not the indicators, not the market, but your own…

Greed:
Greed can have undesired consequences on your trading if you let it take hold of you. These points I am going to mention are from personal experience:

1. Overtrading: I suffered from this for more than 3 months. Majority of my days kept ending in profits. I was confident in my trading. But the CHARGES kept adding up. At the end of the month, my net PL was deep red. Happens when “revenge” trading, trying to “win back” your losses.

2. Taking marginal setups: Taking setups that are not there in the first place. Happens when market is consolidating. You are faced with “boredom”. There isn’t a specific direction or trend. But your itchy hands start to take any setup there is.

3. Expecting more as “compensation”: Again happens after string of losses. Now you feel the market “owes” you a winner. So, you keep holding to your trade beyond your exit plan. It suddenly drops. You end up booking less than 1:1. You end up frustrated.

4. Overconfidence: You are the “MIdas Touch” trader. Whatever you lay your hands on, it turns to gold . You feel nothing can go wrong now. Euphoria. You increase your lot size. You don’t preset your SL. Happens after when you’re on a win streak. The point when you need to be most cautious, you are most careless.

Fear:
Fear is vital for human survival, & for survival in the markets. One must not eliminate fear to succeed. He must rather acknowledge the fear in his mind, & proceed to take control of it. Of course, everyone here knows this is easier said than done.
But fear does make you do certain things that are detrimental to your trading success.

1. Under trading/ Hesitation: You pick & choose your trades. You only take the trade that “feels” right to you. If there are 3 trades you identified based on your setups, you take only 1, making sure everything is “perfect”. What happens? The trade you took turns a loser, & the other two – winners. Happens on losing streaks. You feel the market is “against” you. So you trade less so as not to “anger” the market.

2. Missing Setups : You refrain from trading altogether. Happens when your losses have piled up. Although a break from trading here & there is necessary, not trading is not the solution.

3. Leaving money on the table: “Ill take what I can get” mindset. Happens when you’re impatient. You so desperately want to end the day with profits. Maybe you want to post the screenshot on instagram. But the low RR that you’re booking will NOT be able to cover your loss days when they come.

4. Self-doubt. You are afraid of the market. You feel like a bad omen. A “Panauti” in Hindi. You convince yourself that any trade you take, will be a loser. A string of losses can create self-doubt that is very difficult to eradicate. Or maybe you have something going on in your personal life that is affecting your trading & causing self-doubt.

PlanFullNess:
I came across the term “planfulness” in the book “Psychology Of Trading by Dr . Brett Steenbarger”. He asserts this to be the solution to deal with trading emotions. Being planful & rule-governed. I am trying to incorporate pure planfulness in my trading. This is what planfulness is to me:

1. Trading ONLY your setups: Not something that “looks” like or “feels” like your setup. Even if it is 99% similar to your tried & tested setup, you must NOT take it. No making up new setups on the spot. Only back-tested ones. If there are NO trades available for your setup, sit & WAIT.

2. Trusting the setup’s expectancy: The term “expectancy” is elaborated in the book ‘The universal principles of successful trading -by Brent Penfold’. In brief, as long as your setup’s expectancy is positive, that setup is money-making. The point here is not to get affected by the outcome of a single trade, but judge your results based on a sample size of trades. You may experience a string of losses, but as long as your expectancy is positive, you will be in net profit over a sample size of trades.

3. Taking ALL instances of the setup: Straight from Mark Douglas’ “Trading in the Zone”. if there is a trade based on your setup, you take it. Period. Only then can you judge the strength or weakness of your setup, & change it if need be.

4. Proper exits & stops. I am sure there are a no. of trades where you exited, only to see the trade shoot up far beyond your take profit level. Again planfulness dictates that you stick to your RR no matter what. That is the only way to move forward. You cannot predict whether your current trade will shoot to 1:20 RR or not. But if you wait, you will end up booking less than 1:1.

5. Trading in the Zone: “The best loser is the long-term winner”. Acclimatize yourself with loss. As long as you’re not ready to accept loss, you will always be out of the zone. I am trying to do this myself. Hopefully we all succeed & get in the Zone together.

Source: CMT Association

There are three premises on which the technical approach is based:

1. Market action discounts everything.
2. Prices move in trends.
3. History repeats itself.

Market Action Discounts Everything: The statement “market action discounts everything” forms what is probably the cornerstone of technical analysis. Unless the full significance of this first premise is fully understood and accepted, nothing else that follows makes much sense. The technician believes that anything that can possible affect the price-fundamentally, politically, psychologically, or otherwise-is actually reflected in the price of that market. It follows, therefore, that a study of price action is all that is required.

The technician is claiming that price action should reflect shifts in supply and demand. If demand exceeds supply, prices should rise. If supply exceeds demand, prices should fall. This action is the basis of all economic and fundamental forecasting. The technician then turns this statement around to arrive at the conclusion that if prices are rising, for whatever specific reasons, demand must exceed supply and the fundamentals must be bullish. If prices fall, the fundamentals must be bearish.

Prices Move in Trends: The concept of trend is absolutely essential to the technical approach. The whole purpose of charting the price action of a market is to identify trends in early stages of their development for the purpose of trading in the direction of those trends. In fact, most of the techniques used in this approach are trend-following in nature, meaning, that their intent is to identify and follow existing trends.

There is a corollary to the premise that prices move in trends-a trend motion is more likely to continue than to reverse. This corollary is, of course, an adaption of Newton’s first law of motion. Another way to state this corollary is that a trend in motion will continue in the same direction until it reverses. The entire trend-following approach is predicated on riding existing trend until it shows signs of reversing.

History Repeats Itself: Much of the body of technical analysis and the study of market action has to do with the study of human psychology. Chart patterns, for example, which have been identified and categorized over the past one hundred years, reflect certain pictures that appear on price charts. These pictures reveal the bullish or bearish psychology of the market. Since these patterns have worked well in the past, it is assumed that they will continue to work well in the future. They are based on the study of human psychology, which tends not to change. Another way of saying this last premise-that history repeats itself-is that the key to understanding the future lies in a study of the past, or that the future is just a repetition of the past.

Source: Steve Burns

Trading discipline involves making yourself follow your own trading rules. Self discipline enables a trader to trade a system consistently over time like they planned to with the right position sizing, stop losses, and trailing stops.

Many times a trader can feel like they are two different people. They can feel calm and rational when the market is closed and they are researching trading, developing a system, and planning on the strategy they will use to enter and exit trades and how big their position sizing will be. Then when the market is open, prices are moving, and they are making or losing money then emotions and ego can rise up and make it more difficult to think clearly and follow their predetermined plan. Being a professional trader is the ability to do the right thing regardless of how you feel.

Here are five things a trader will be tempted to lose their discipline and follow their emotions, desires, or ego over their trading plan and what to do about it.

The lack of discipline to take a trade when you have a signal can be devastating as you miss the good trades. Fear can be holding you back from taking your entries. The causes can be that you don’t have faith in your signals because you have not backtested them enough, don’t understand the edge, or you are simply trading too big. In trading you will have losses and you have to accept it if you want to trade. If you felt too much stress when taking a trade decrease your position size until you are comfortable enough to enter.

“I take the point of view that missing an important trade is a much more serious error than making a bad trade.” – William Eckhardt

Fear of missing out can cause a trader to lose discipline and enter a trade too late leaving them with a bad risk/reward ratio. Knowing that no one trade will matter much in your next 100 trades will help lower the desire to chase. There will be other trades, wait for them.

Entering too early into a trade can be a loss of the discipline of patience. Front running a signal to try to get a better price is dangerous because you are buying randomly and with no edge. A signal is a safety filter to ensure you have a better chance of making money on a trade. If you don’t have the discipline to wait for your signal then you have no edge over other traders.

“As a result of having no system and no rules, they have no way of effectively managing their trading. How well do you think a company would operate with no plans, no business systems, and no rules? Because they have no rules to follow, everything no-rules discretionary traders do is a mistake.” – Van Tharp

Letting your own beliefs about what the market should be doing or your bias about what the market will do in the future can interfere with your discipline to follow your own trading system. A trader has to have the mental flexibility to understand anything can happen and also the discipline to follow their trading system so they will be able to capture the moves when they happen.

The discipline to follow your trading system is an edge. If your trading system has a quantified profit factor over a series of trades or you are a discretionary trader with rules that create good risk/reward ratios then your job is to simply be a disciplined trader and let your edge play out over time. You are your edge.

In trading, discipline is an edge. Having the ability to implement your trading plan in real time consistently will make you a better trader and create better trades. No trading system will be profitable no matter how good it is if it can’t be implemented with discipline over the long term.

Discipline is the art of execution. Discipline can emerge from having faith in yourself and your trading system so your trading plan can be used as a compass and a map to profitability not just a suggestion.

Trading is a high performance sport much like other professions where approximately the top 10% make money doing it and the top 1% become very wealthy through huge outlier success. To get to the highest levels you must do things differently than the majority and do what the top performers do.

Source: Zerodha Varsity

Winning Traders are humble.

It is important to reward yourself for a job well done. We feel pride after making a significant achievement and are especially proud when the achievement has increased our social status. Pride can be a powerful motivator. If you are one of the rare few who have achieved consistent profitability, you should feel proud. Trading is difficult. Few people master it, so when one is doing well, it’s natural to feel a sense of accomplishment and pride. That said, it is vital that you rein in your pride and stay humble. Don’t become arrogant and overly proud. Winning traders are humble.

Too much pride often leads to disaster. Pride can be a competitive emotion. Those who are especially proud have a burning desire to brag about their accomplishments and feel superior to others. This can go too far. When people speak of their successes too often, others often resent them, and can’t wait for them to fail. The overly proud trader is likely to cave into strong social pressure to continue making large financial gains to save face. There’s also a risk of becoming stubbornly proud. Stubborn pride occurs when people have spent so much of their life feeling proud of their accomplishments, and trying to feel superior to others, that they have difficulty admitting when they have made mistakes. At an extreme, the overly proud become afraid to face mistakes and may even deny that they have faults.

Extreme pride can be a danger for trading and is the downfall for many. Trading is hard enough without introducing additional psychological pressures to feel superior to others, maintain social status, or save face. When pride drives trading decisions, one is likely to take unnecessary risks in order to make big wins to keep up appearances.

Controlling pride is vital. It is important to develop internal standards of self-worth. Don’t compete with other people. Learn to compete with yourself. Develop your own rules and standards related to your skill as a trader. When you reach your standard, you can feel a little pride, but don’t feel the need to tell others about it. If you can feel proud of your accomplishments, without feeling the need to brag about how well you have done or exaggerate how well you are doing, then you will have learned to feel a true sense of pride and self-worth.

Successful trading requires that one knows how to experience the proper amount of pride. When one achieves a goal, it’s natural to feel a sense of accomplishment. But it’s vital to maintain an objective, non-emotional approach. Pride usually prevents one from cultivating this approach. The more you can keep your pride under control, the more successful you will be at making rational, unbiased decisions.

Source : Scanz

Often times, it’s the little life lessons that have the biggest impact. A simple piece of advice from a friend or family member can have a stronger impact than ten self-help books combined. It’s a lot easier to apply a concept such as “treat others how you’d like to be treated,” than it is to memorize a book on ethics. In order for advice to be beneficial, it needs to be actionable and memorable. The same logic applies to day trading lessons.

Trading is complicated enough as is. You can read a stack of books on trading theory, watch countless YouTube videos, and enroll in premium courses only to find out that nothing is having an effect on your bottom line.

You’ll hear many successful traders attribute their success to a single “aha moment” or words of advice they received from other traders. It’s a lot easier to absorb and apply these “micro-lessons” than it is to take action on a book full of theory. In the spirit of keeping things simple, let’s get right to it.

This post is an ode to simplicity. Hopefully, a few of these ideas will stick!

Here are 25 simple trading lessons that all traders should commit to memory.

1. Learn First, Trade Second

New traders are always excited to jump into action. When you’re putting your hard earned money on the line, it’s important to make sure you’re equipped with a strong foundation. Learn the ins and outs of the market and test yourself with paper trading before entering the big leagues

2. Create Trading Rules

Trading rules help you simplify your approach to trading and keep yourself inline. Create trading rules that help you decide which type of trades to pursue and which type of trades to avoid.

3. Follow Your Trading Rules

Creating your trading rules is the first step; following them is the second step. This seems obvious, but this is where many traders get in trouble. Create rules and follow them.

4. Become Self-Sufficient

Many new traders come to the market looking for mentorship and guidance. It’s okay to learn from others but your ultimate goal should be self-sufficiency. Make sure your daily actions are in line with this goal.

5. Keep it Simple

Simplification is a powerful tool for traders. Being able to take complex data and simplify is a skill that will pay dividends for years to come. Focus on keeping things simple in all aspects of trading. This may include your charts, the setups you look for, and the tools you use.

6. Focus on Efficiency

Efficiency and simplicity go hand in hand in the stock market. Efficiency means you are making the most of your time spent so you can be as productive as possible. If you’re staring at the screens eight hours a day to make $50 in profits, you may not be operating as efficiently as possible.

7. Limit Losses

Nobody likes losing. Unfortunately, losing is a part of life and a part of trading. The best traders take their losses and move on. If you keep your losses manageable, you can come away with lessons that will help you improve as a trader. If you let your losses grow, you risk taking yourself out of the game.

8. Learn from Losses

Losses are the cost of doing business as a trader. Fortunately, like any business expense, losses provide something in return. Use your losses as lessons to help you create new trading rules and improve your strategy.

9. Stick to a Niche

Here’s a little secret: no one has mastered the entire market. Successful traders find areas of strength and capitalize on them. Instead of trying to catch every trade, focus on developing a niche and honing in on it.

10. Don’t Get Greedy

Greed is one of the most detrimental emotions in trading (consider it a deadly sin). Like many emotions, greed can cause you to act irrationally. This may cause you to take inflated position sizes or turn a winning trade into a loser. Let your strategy and trade plan guide you and avoid getting greedy.

11. Get Used to Doing Nothing

“Do nothing? What kind of advice as this?”

As counterintuitive as it may seem, sometimes doing nothing is the most strategic move. Day traders are hunting for prime trading setups. If there the setups don’t show, there’s no reason to pull the trigger. Get comfortable with the fact that you may not trade for hours or days at a time.

12. Be Prepared

If you want to make it as a trader, get used to planning everything. You need to come to the market with a game plan every single day. While you cannot account for everything, a proactive approach beats a reactive approach in most cases.

13. Be Patient

Coming to the market prepared is the first step. The next step is remaining patient as you wait for your setups to pan out. Be patient when waiting for setups to form and planning your entries and exits. This will allow you to become a more disciplines (and, ultimately, profitable) trader.

14. Have Realistic Expectations

You’ve probably seen a variety of advertisements for gurus who claim you can make thousands of dollars trading a couple hours a day.

Spoiler alert: it’s not going to happen.

Trading requires hard work and practice. If you come to the market expecting to make millions, you’re going to be disappointed. Set realistic goals and focus on growing at your own pace.

15. Small Wins Add Up

Trading is a strategic long-term game. Like most sports games, it’s the little wins that add up over time. The majority of points scored in most basketball come from 2-point shots. The same strategy should be applied to trading.

Let your wins add up instead of trying to sink a half-court shot.

16. Make Sure You’re Properly Equipped

There are “tools of the trade” in every profession. Make sure you show up to work properly equipped. Traders need access to the right brokers, platforms, and data if they want to be successful.

17. Don’t Trade Under Duress

The “mental game” is a big part of trading. If you’re not in the right frame of mind, consider avoiding the markets. Trading under periods of stress can cause you to make irrational decisions that can cost you in the long run.

18. Avoid Vengeance Trading

There is only one good reason to place a trade: you see a setup and you have a plan. You should never trade because you need money or want to avenge a loss. Many traders get into trouble because they try to make back what they lost on a previous trade. This can cause you to ignore your core strategy and make poor decisions.

19. Assess Your Own Behavior

You’re your own boss as a day trader. Consequently, you may need to play the role of the “boss” from time to time. Analyze your own behaviors and trading patterns and look for areas of improvement. If you’re honest with yourself, this type of introspection and self-awareness can take your trading to the next level.

20. Ignore Hype and Cynicism

Your trades should be based on your plan and your plan alone. It’s easy to get wrapped up in what other people are saying on Twitter, message boards, and CNBC. The fact is, no one has 100% certainty in the markets and if you plan properly, your hypothesis is as valid as any other.

21. Plan for Success

A trade doesn’t end up in the win column until the profits are realized. It’s important to have a game plan for how you will exit trades when they go in your favor. Know when you will take profits and why. This will help you avoid getting greedy and ruining an otherwise successful trade.

22. Plan for Failure

Losses happen. You can’t control a stock’s price action but you can control your own actions. Have a plan for how you will react if a trade goes against you. There are ways to take losses gracefully and there are ways to turn them into disasters. Strive for the former of the two.

23. Adapt

Trading is one of the few activities where you can never reach a pinnacle. There’s a theoretically infinite amount of money that can be made in the market, therefore there’s always room for improvement. Adapt and evolve. Focus on becoming a better trader every day. If market conditions change, adapt. If your strategy isn’t delivering the results you want, evolve.

24. Trading is Not Gambling

This should go without say, however there are still a lot of people out there who believe trading is gambling. They think the market is rigged against them and day traders are as fanatical as gamblers.

When done right, trading is not gambling. That said, it’s your role as a trader to differentiate the two. Do your research, create well-rounded plans, and identify setups with high probabilities for success.

25. Have Fun

As cheesy as it may sound, having fun is conducive to your success as a trader. The leaders in any field actually enjoy their work. You won’t become a top mathematician if you hate math, you won’t become a leading scientist if you despise science, and you won’t become a successful trader unless you enjoy yourself.

Enjoy the ups and downs of the journey, keep your eyes on the prize, and stay persistent.

Source: Motilal Oswal

We have seen in the past that trading is less about great insights and more about great discipline. If you are a serious trader, then you need discipline in trading and that can only come from setting clear cut trading goals. There really cannot be a template for trading goals as they need to be customised to your unique requirements. However, here is a fairly practical guide to setting your trading goals.Remember; when you open a trading account never ever start trading with real money unless you have your trading rules clearly laid out.

Trading Goal 1: Never trade money you cannot afford to lose..
This may be actually stretching things a bit too far, but what it indicates is that when you trade you must be prepared to lose money. You do not have control over how the market will behave or how your trade will move. But, you surely have control over how much you can afford to lose. In trading, higher returns entails higher risks but just assuming higher risk does not assure you higher returns. It is this paradox that you need to understand before your start trading. Every trade must be seen in terms of the maximum loss that you are willing to bear and the maximum capital erosion you are willing to tolerate.

Trading Goal 2: Always set realistic trading goals..
Trading is not rocket science. When you set targets for trading you must always be realistic. Just because you earned 10% for two weeks in succession does not mean that you can earn 500% returns in the full year. The law of probability will catch up with you sooner rather than later. Your trading goals should be clearly defined in terms of your stop loss and your profit booking triggers. As a trader maintain a reasonable trade-off between your risk and your return. If you are targeting a stop loss of 1% then keep your profit at above 2.5% for the trade to be meaningful.

Trading Goal 3: Set goals in terms of your trading volumes..
This may be a little difficult as it is hard to predict how much volumes you may be required to do. The idea is to ensure that you do not over trade in an effort to make more profits. That is not a very smart thing to do. There must be a certain reasonable proportion between your profits earned and your costs in terms of brokerage and other statutory charges. While there are no hard and fast rules here, here is an example. If at the end of the quarter you realize that more than 25% of your gross profits are being accounted for by your costs, there is surely something wrong with the way you are trading.

Trading Goal 4: Keep a detailed documentation of your trades..
This is a very important trading goal as it helps you to take a dispassionate look at what trades worked and what trades did not work for you. That is an important input for your future trading strategy. A detailed documentation with comments is very important. This helps you identify trends that have made your trades successful and trends that have resulted in failed trades. It also helps you identify whether you have booked profits too soon or if you have triggered stop losses too late.

Trading Goal 5: Always stay on the side of momentum..
You cannot really be a good trader unless this is one of your principal trading goals. A trader, unlike an investor, does not try to second guess the market. For a trader, the trend is his friend and that is what determines the structure and nature of his trades. Once you understand the structure of the momentum, you can design trades accordingly. As a trader you are not looking at bargains but you are looking at how you can ride the trend. The biggest risk for a trader is to be caught in the wrong side of the trend.

Trading Goal 6: There is life beyond trading
This may appear to be slightly out of place, but equally necessary. It is essential to be passionate about your trading but do not become obsessed by trading. Get a life beyond your trading desk. Try to engage your mind with a good sport as well as a creative hobby. They can freshen up your mind and also give a proper perspective while trading. Spend time with your family. The purpose of trading is to make money in a disciplined way not to lose out on the basic emotional necessities. Try to spend quality time with the family over the weekends rather than worry about your trading performance. That can go a long way!
Trading goals constitute the broad Bible which guides your trading. It not only gives a perspective and context to your trading but also a constitution that will circumscribe your trading activity!

Source: Steve Burns

Qualitative analysis seeks to understand human behavior from the perspective of the researcher of information. It looks for the dynamic in an integrated reality. Information can be gathered through observation, historical research, and interviews of human behavior. Data is analyzed through descriptions and themes. Data is translated and reported through the perspective of the researcher’s opinions on the patterns they see.

A qualitative trader seeks to trade based on trader’s and investor’s emotions and can use systems based on news driven patterns that cause emotional reactions of buyers and sellers. They look for emotionally driven market behaviors. They are primarily discretionary traders that look to trade the emotional reactions of other traders. Qualitative traders use their opinions based on experience and the patterns they see to create an edge.

Quantitative analysis looks to uncover facts about social behavior based on statistics. It assumes a fixed and measurable reality. Data is collected through measuring and quantifying data. Data is analyzed through data comparisons and observed statistical patterns. Data is reported through the filter of statistical analysis.

A quantitative trader uses backtesting, chart studies, and quantified statistical analysis. Quantitative traders are primarily mechanical traders that use quantified entries, exits, and position sizing to trade reoccuring price patterns in the markets. Quantitative traders create an edge by mechanically following their system and the price action regardless of their opinions, predictions, emotions, or ego.

Traders can combine different elements of qualitative and quantitative trading to create their own trading strategy that fits their own comfort level. Creating a trading system that combines both discretionary and mechanical elements can be robust and provide some of the best elements of both types of strategies

Source: Divergent Trader

One of the biggest problems I see constantly is a lack of patience, traders think they need to trade every day to make money.

You don’t…

This is the rat race mentality, if you come from an average middle class or lower class background you will be especially susceptible to this mindset.

You think you have to ‘work hard for money’ If you don’t then you don’t get paid.

But when it comes to trading ‘Less is more’’

It’s a hard concept to grasp because that’s all you know from the 9-5 grind.

But you need to get out of this way of thinking!

The Truth!

You don’t have to trade every day!

-1 Good trade a day

-1 Good trade a week

-1 Good trade a month

–

Hell even one a year!!

Are good enough to create consistent and meaningful returns.

Warren Buffet sums this up perfectly!

You have to think quality over quantity,

Don’t rush something that can’t be rushed.

If you are patient when others are impatient then you are simply taking their money instead of giving it away

All because you are going for quality and waiting for the best setup!

The Power Of Taking 1 Trade A Day!

A good way to trade is simply 1 trade a day, Why?

– Quality

– More time

– Avoid Overtrading

– Easier to record and review

– Sustainable and easier for the long-term

Source: Day Trading Adda

Very few career can offer you this kind of freedom, flexibility, and income that day trading gives. As a day trader, you can work from anywhere in the world. You can decide when you want to work and when not to work. You are your own boss. The only thing you need is one Laptop and Internet. That is the life of a day trader.

Many people aspire to it, but very few succeed.

If you are one among them and looking to leave your job and start day trading or you are running a business and looking to add an extra income, then this article is for you.

They say only 10% of traders succeed in day trading and 90% of traders lose their money, why such a big failure rate in this business?

When I first started day trading way back in 2004, I was a super novice, I didn’t know ABCD of stock market neither I knew anything about technical analysis.

I quit my job and thought I can make it big here by just buying and selling shares and can become next millionaire, but the truth was very harsh, I lost a big chunk of my saving in no time and I had to come back to my day Job.

This is the reason for high failure rate of 90% in day trading, coming with very high expectation without gaining any prior knowledge about day trading.

The first lesson for anyone to enter day trading is, it’s just like any other business. Like how you prepare yourself by doing enough research well in advance and then you take the plunge, the same applies in day trading as well.

Day Trading is a very lucrative business where you can make big money in a short time, but if you are coming with a gambling mindset and thinking that without gaining any knowledge and without hard work you want to make millions, then please stay away and continue with what you are currently doing.

Still, you think you want to take up this business and become a successful day trader? Then you need to follow these 5 steps [bctt tweet=”How to become successful Day Trader.”]

Step 1

They say 90% of the traders lose money in day trading and only 10% make it big, it’s for the reason, most of the traders start day trading with gambling mindset thinking it’s fast and easy money.

Trading should be treated as a business, you need to think and run it like as a business, like in any other business, your revenue should be more than your cost (like rent of your shop, salary to employees, raw material cost etc), same way in trading your profit( revenue) should be bigger than your losses(cost).

Remember, in trading, your only cost is your laptop and internet, you don’t have additional costs like paying rent, paying for raw material or paying salary to employees, so whenever your SL hits and you make a loss, accept it as a cost of doing business.

Traders who have realistic expectations and who treat trading as a business, not as a hobby or a get-rich-quick scheme are more likely to succeed in this business.

Step 2

Have a Robust Strategy

Have a back tested trading strategy, it need not to be very complex, even simple support /resistance strategy is good to start with, if you go to Google and search day trading strategies you can see thousands of strategies, select one, back test it(at least on 6 months to 1 year data), stick to it and master it.

For me, I am a big fan of pivot points, so my day trading strategy based on pivot points and price action.

The same way you can pick one strategy as your favourite and make it your own.

But, remember, it’s not the only strategy which makes one successful, risk management and trading psychology equally important in day trading.

Step 3

Be a student of the market.

If you want to become a full-time trader, it’s important that you take the time to read and do a lot of research, backtesting on your system or strategy; these are essential steps in your overall success as a trader.

When finally, I decided to become a full-time trader, my preparation went for almost 2 years before I took my first trade as a full-timer, so, in trading, be a student who is well prepared before taking his final examination.

You need to keep updating your knowledge; it should be the same as how you were preparing for your board exam, like sharpening your knowledge by doing a lot of studies and research.

Spend good time in backtesting your strategy, learn new every day through google, books, videos and whatever you get hands on.

One more way to learn newer things is by following experience traders on social networking sites like Twitter, Facebook and reading their blogs.

Step 4

Risk Management is ‘Holy Grail’ of trading

If there is only Holy Grail in the trading,then it is “Risk Management”

No trader survived in this business without a proper understanding of risk management.

Trading is a profession where you will get better and better with experience, and to get that experience you need to survive in day trading, and to survive you need to protect your capital, the only way to survive and protect your capital is trading with strict SL(Stop Loss)

You need to decide your SL even before punching you trade; it should be at a place where you think price won’t reach, also it should be based on the risk per trade.

In my case, I don’t punch any trade without SL, and my SL is 1% of my trading capital.

Some traders believe in keeping mental SL than system SL, don’t fall for that trap, it should be in the system not in your mind, once SL hit you are out of the trade, no questions asked.

There are many articles and books available emphasizing on Risk Management, read that even before taking your first trade.

Step 5

Trading psychology

Last part of 5 steps, Trading Psychology is most important when it comes to trading but most underrated and neglected by new traders.

Trading psychology which differentiates good trader from a bad trader; on this subject, you will get a lot of reading materials, Mark Douglas wrote an entire book on Trading Psychology,” Trading in the Zone” you can consider reading this book.

Trading psychology is all about controlling your emotions while trading, like, not over trading, not revenge trading, and more importantly not taking impulsive trades like FOMO (Fear of missing out)

Many people think that when they become day trader they have to keep trading entire day, it’s not true, in trading, unlike other professions, lesser the trade better it is, one needs to have the patience to wait for the right set up to occur, sometimes entire day there may not be any good set up, in that case don’t trade.

To become successful trader, one need to have arobust trading system but same time risk management and trading psychology also important.

CONCLUSION

If you are still thinking whether trading can be taken as a full-time profession? then my answer is YES, provided you have gained enough knowledge, have at least two years of savings as a backup, and ready to maintain strict trading discipline.

One need not to be from financial background to be successful in trading, I am from Biology background and worked in sales profession for many years, my educational background and work experience are totally different from financial market, but, still I could make it because of my passion for day trading, so, you can also make it if you are really passionate and hunger to succeed in this business.

Source: Steve Burns

A traders emotions, ego, and thinking can become very distorted when real money is at risk in the markets. Hormones like serotonin, dopamine, and adrenaline can cause impulses and emotions to drown out thinking and decision making skills.

Emotional intelligence is one of the most important skills a trader can possess, this is the ability to think at a level higher than your emotional reactions to circumstances. A trader must have the abilities of self awareness, self control, and be able to express emotions in a positive way. It helps with performance for a trader’s self talk to remain positive and constructive, dealing with facts and reality and not become negative or catastrophizing circumstances.

The price action and volatility of the markets can be difficult enough without adding personal issues and weaknesses into a trading system. You will never be able to control or predict the market, the best you can do is control your own actions and predict what you will do in response to price action.

Here are the primary things that cause the psychology of trader misjudgment.

Traders are incentivized to make money, that is why they are trading. They start trading by seeing everything through the lens of making money. They take profits early to lock in a small winning trade to make money, they let a losing trade run hoping it will get back to at least even because they don’t want to lose money, they think more trades will make them more money so they over trade. If a trader really wants to make money they need to be focused on the big picture of a complete trading system not the small picture of one trade. They have to see how it all fits together to make money. A big part of this process is letting winners run and cutting losers short. 

Psychological denial will cause a trader to think they are special and have a natural ability as a trader. Denial can cause a trader to not see a trend because they don’t believe that it should be happening. Denial can cause a trader to refuse to exit a losing trade as they can’t believe it will not bounce back. every trader should be accepting the current market reality and never deny what is actually happening.

A trader can have an ownership bias when they are long or short a position. A trader that identifies as a bull or bear can start reading information from a biased perspective only seeing what supports their current positions. Signals are great equalizers in current position bias blindness by making a trader follow the plan they had to get out before they got in.

Misjudging the past correlation of professional success as a reliable basis for trading success. High performing professionals in other fields like doctors, lawyers, and executives can think their skills will carry over into trading the financial markets. They can believe their intelligence is an edge but many times the principles of successful trading are very different than in medicine, law, and the business world. Opinions, predictions, and ego are not strengths in trading. Admitting you are wrong, going with the flow, and staying flexible are skills unique to trading most of the time. Creating a system with an edge is what leads to trading success not success in past careers.

Misjudgement based on ego. Once a trader publicly announces a trade, opinion, or prediction they can become entrenched in defending this position and abandon logic, reason, and reality. Even becoming more convinced they are right the farther the position moves against them because they think a reversal has a higher probability the more it moves in the wrong direction. This is ego blindness and caused by the ego taking over the thinking process as it refuses to be proven wrong.

It can be bad judgement to be bullish or bearish simply because the majority of people are. Many times the top of a chart happens when most people are very bullish and the bottom usually happens when the majority of people are bearish. Most of the money is made in the trend of a chart between the top and bottom, getting in too late can be very expensive. 

Here are some of the top cognitive errors that cause bad judgement. The primary reason why mechanical trading systems and rule based trading have an edge is by eliminating most of these errors of traders bad judgement when emotions and ego interfere with following a profitable trading process. 

Warren Buffett says “Risk comes from not knowing what we are doing.  We only have to do a very few things right in our life so long as we don’t do too many things wrong.” These words fit so well for trading. Most of the traders are not successful because they don’t have a plan. Their decisions are based on tips, newspaper reports or what their friends are doing. This kind of trading may lead to a couple of successful trades through pure luck but in the long run it will only lead to ruin.

It is not a secret that markets are unpredictable and no one can guess what is going to happen in the future. Do we avoid or stop trading? No. We have to find out a way to trade with minimum risk or with a known amount of risk. There is only one way to do it and it is to study the past trends of the markets. If we decide to trade gold, then we should analyze the past one or two years of the price data for gold and see its behavior. Based on this we can arrive at a plan for trading.  Trading based on ‘trend following’ is the best way to trade and the easiest way to reduce the trading risks.

Keeping things simple is the first step in this direction. It allows us to trade without any anxiety, fear, frustrations or anger. These are the worst enemies of traders.  Being disciplined, following our trading plan, having complete faith in our trading plan, keeping realistic expectations and  being patient will give us consistent results from our trading.

Planning our trades is the beginning. Our plan will tell us when to enter and when to exit a trade. Once we are clear on these points then all that we have to do is place a trade and wait patiently for our plan to tell us it is time to exit.  Another fact which we have to remember is there is no trading plan that will give us 100% winners. Every plan will have both successful trades and failed trades. All prudent traders are aware of this fact and they take it in their strides as they believe that over all they will achieve positive returns. They have complete faith in their trading strategy. If we believe that we can control our trading results and can avoid failures then we are in a fool’s paradise.

Source: Steve Burns

To be a profitable trader you need three things:

1. A trading system with an edge. 
2. Proper position sizing per trade.
3. The right trading mindset. 

If you don’t have the right mindset for trading then the other two will not work. 

Here is a trader cheat sheet of the principles you must understand to create the right mindset in trading. A trading cheat sheet for the psychology of profitability. 

• A new trader must understand that trading is not a get rich quick scheme, it is a professional endeavor that requires learning how to create quantified trading systems that have an edge over other participants. 
• Professional trading is not gambling it is like running a business. Profitable trading is more like operating a casino than emotional gambling if done correctly. Think like a business manager not an emotional gambler. 
• Successful traders have an edge in trading systems and signals not predicting and having strong opinions. Traders don’t know the future, they know what has the best odds of working in the present. Traders should have a flexible opinion about price action. 
• Great traders have losing trades, profitability doesn’t come from perfection it comes from creating good risk/reward ratios at entry. Losing trades must be accepted as just part of doing business. 
• To keep a stable mindset, position sizing should be kept consistent and at a size that doesn’t cause excessive stress, emotions to become too loud, or ego engagement where you want to be right. 
• A trader must have faith in their trading system. This comes through research and backtesting into a method that has a positive expectancy and fits their belief system. 
• A trader must have faith in their self to execute their system with discipline. This comes with time and success in execution. A trader must trust their self to not let impulses cause bad decisions. 
• Traders must have the mindset of discipline to follow their trading plan’s rules and believe that a good trade is one that followed their system regardless of results. 
• A trader must have the perseverance to trade their system through losing streaks and drawdowns understanding that it is just part of the process. 
• Trading results must be kept separate from a traders self worth. A trader can’t control market outcomes, they can only control their own actions. 
• A positive mindset must be maintained to avoid a negative emotional spiral. Focus on the positives on every trade, like you kept losses small or followed your process with discipline. 
• Don’t become euphoric with big wins or depressed during losses or drawdowns, keep your emotional equilibrium after each trading outcome. Stay off tilt in either direction. Each trade is just one of the next one hundred, divide you emotional reaction between them. 

Source: TraderLion

We’ve all heard it before: Some guy on Twitter bet the farm on a trade that he believed would solve all his money worries and bring him to early retirement. Two weeks later, he’s disappeared completely from social media. He’s grown awfully quiet. No more bragging. No more pumping. It’s not a mystery what happened here.

Losing is a very, very painful business. It destroys more than your account – it destroys your ego, your future plans, and often your family. And just as demoralizing as this, such events make it seem that  all  retail trading is  risky  trading. It propagates the belief that you will never be smart enough, stable enough, or sophisticated enough to achieve your own financial independence through trading. As they’ve always said, “You can’t beat the market.”

But retail traders have never been the problem. The problem is the FOMO that retail traders (even pro traders) experience. So why does FOMO keep happening to us? I decided to dig a bit into the actual science behind FOMO. What is it exactly? And — like a surgeon — can we excise this tumor from our trading mindset?

The Science

FOMO is a response to threats with biological roots. It originates in the amygdala, a small but incredibly powerful part of our brains. So powerful, in fact, that “neurons there are involved with fear conditioning, a process by which we can learn to fear and avoid something,” says Regina Bailey, Biology Expert for ThoughtCo.

FOMO

As FOMO intensifies, the amygdala also activates the pituitary gland to release cortisol. And according to Dr. Robert Stawski, Associate Professor at the College of Public Health and Human Services at Oregon State University, this cortisol can impact cognitive function by “interfering with neural transmission and subsequent behavioral performance.”

In summary, FOMO not only influences our short-term behavior, but solidifies the response by creating a long-term habit.

FOMO

Applications to Trading Psychology

In trading, FOMO is more concerned with the threat of financial livelihood than actual survival. For most of us, money is in short supply or not enough. Therefore, any threat to losing it, or missing out on making more of it, kickstarts the whole FOMO-amygdala process.

For all traders, here are some of the most common FOMO-inducing scenarios:

1. Information overload  — You’re getting bombarded with “get-rich-quick” advertising, penny stock shams, or fear-based campaigning (e.g. buy gold coins now to protect yourself from economic meltdowns)
2. Social media storms  — Your friends, friends of friends, or complete strangers are making a fortune in a particular growth stock… and you’re not.
3. Poor risk management  — You’re down a great deal of money on a losing position, so you take overly aggressive action to recoup your loss by “doubling down”, in the hope that it will bounce back.
4. Impatience  — You just can’t wait for the setup to provide the proper buy-signals. You’re afraid it will run away on you. Perhaps, you even like the idea of being the first one in! Either way, you put more stock in fear than you do the actual stock.
5. Expectations are too high  — You’ve made it a goal to double your account over a certain timeframe, so in order to accomplish that, you bet bigger and risk more.
6. No rules  – Your only rule is “get involved” in trades, which means jumping in and out of trades with no system, banking entirely on a hope strategy without an actual strategy.

In 2017, we had a number of stocks that created rampant FOMO, most directly through the form of social media. Some such stocks included DRYS, MNKD, and HMNY, just to name a few.

DRYS moved from $4 bucks to $100 in the span of 4 days. That’s a 2,400% return. On the fourth day of the move, the FOMO thought-process was basically this:

If it can go 2,400% percent, it can go at least another 100%. This is easy money. Don’t be stupid and miss it. People trade an entire lifetime to try and make 100%. Buy this now. You gotta buy this. Scared money doesn’t make money.

Now, tell me honestly, does the initial move of this stock excite you? If so, you’ve got FOMO. You need to sit down. Take a breath. And consider buying a straitjacket to put yourself in.

Over the following 3 days, DRYS proceeded to give back all of its gains. I mean, ALL OF IT. People who bought at the top — or close to it — got crushed. And let me tell you something, the market is always fair. For every action, there is a reaction.

How Do We Stop FOMO?

So, can we actually stop this FOMO? If it’s so engrained in our psyche, our human behavior, how can we ever get rid of it? On this question, I spoke with a few pro traders and got some good news and bad news about ridding ourselves of FOMO.

So bad news first, always.  We won’t ever escape the THOUGHT of FOMO.  FOMO strikes the very best and the very worst traders at usually the same time, in pretty much the same ways. The good news, however, is that  you have a choice in how you react to it.  Poor traders react to it, they simply have to! Pro traders just ignore it.

By simply NOT reacting to your FOMO-crazed thoughts, you can make a fortune.

Here are their personal strategies they shared with me:

1. Plan the trade ahead of time  — Trades take time to set up. The good trades take multiple days — often the very best can take weeks or months — to offer proper entries. You should always stalk chart patterns in advance. Then WAIT for your entry criteria to present itself (i.e. above-average volume, MACD crossover, overcoming a resistance level, etc.). If the trade does not have the right signal (or multiple necessary signals) do NOT enter the trade.
2. Entering a trade too late  — “Chasing” is a common problem. The IBD recommends never chasing a stock 5% above its entry point. TraderLion recommends not buying 2% above the entry. Prices often pull-in to re-test a breakout point, but can still be acting within its “normal character”. Most trades don’t go straight up, right away. They need room and time to work, and lower prices to accumulate more buyers. So why stress yourself by holding a stock that is pulling back because you entered at a higher price? The solution to chasing is simple: Don’t put yourself in that situation to begin with. Buy right the first time. Use price alerts. Chances are if you are “chasing,” you probably skipped strategy 1 (above).
3. Accept the loss beforehand – Know exactly what you could lose on the trade ahead of time, and accept this.  Really  accept it. Understand that you don’t need this specific trade to be successful. Rather, you need a series of trades that have an edge to deliver profitable returns over time.
4. Stop interfering mid-trade  — This one was the hardest for me when I first got started. There will come a time when your stock goes down while other stocks are going up. But remember, as long as your trade is between your predefined stop loss and your profit target, it is still in play. Do not interfere, do not self-sabotage. There is nothing you need to do. All of your work should have been done BEFORE the trade was placed.
5. Tune out distractions  — This includes news, social media, and whatever else is clamoring for your attention. Seriously, nobody will have more interest in you becoming successful than you. You are responsible for your trades, both your losses and your wins. If you take a loss, own that outcome and try to understand why. If you win, own that too — you’re doing something right!