Trading for your living means you can be your own boss and make money by your own rules. But that kind of freedom comes with utmost dedication towards the art of trading. In this article, we will be covering what it takes to become a successful entrepreneur who trades for a living.
Ten Tenets to become a successful trader
When you have realistic expectations from the market, you can strategize intelligently to make around 2-3% return on your capital every month. For you to live off that return, you will require a substantial amount of capital. In addition to that, if you are going to compound even half of your return every month to increase your capital, you can expect to take out 1% of your capital as your earning.
Guarding your Capital
The amount of capital you use to trade with should ideally increase as your confidence grows with practice. It also depends on your individual risk appetite. To calculate the capital you will need, calculate the average loss you might make with your trading system and use 50 times that amount to trade.
When successful traders were asked about what makes them win, they attribute their success to psychology more than technique. If you trade with discipline, you can dramatically increase your chances of profitability. By discipline, we mean sticking to your stoploss and not over trading. By compromising on discipline, you might succumb to mental demoralisation which could be hard to recover from.
Generate more light than heat
The number of winning trades depends on your trading system and to an extent, probability. In simple math, your profitability depends on the difference between your winning and losing trades. For example, if you execute 100 trades per month and 55 of those trades are wins and 45 of those are losses, you still remain a profitable trader.
Listen to the market
Most traders believe that the market will obey them and not be prepared to handle the opposite. Going in with a predetermined notion that the market will listen to you might not be advisable. On the other hand, if you keep an open mind and adapt your trade to how the market moves, you will find yourself on the green end of your MTM.
Have a trading plan
Another building block of an efficient trading system is to have a trading plan. A trading plan should have your entry and exit rules along with the stoploss for every trade. We recommend that you do not risk more than 2% of your trading capital per trade. It is also important to capture an up or down trend from the beginning to make the maximum profit.
Understanding Price and Volume
The market is driven only by price action and volume. The price of a stock is determined by results, news and other national and international factors which immediately reflects on its price. Volume is another important factor in a good trading system. If a price movement is supported by good volume, you can assume that trend has started.
Powerful Trading Strategies
The crux of a trading system is its strategy. There are several strategies available online which you can adapt and modify depending on your risk appetite and capital available. When you are looking for greater capital appreciation over a long period of time, there are a few strategies which will do the job for you. We will discuss those strategies in detail in our upcoming posts.
Being Objective and not Subjective
Quantifying your trading system and each of your trades along with it can go a long way in increasing your confidence. If you are determined to take up trading as a career, you need to remove your impulses and trust the numbers your system delivers. But over time, it can get easy for you to stick to the rules of your strategy.
Composite understanding of Profitable Trading
Like we highlighted earlier, for you to become a competent trader you will require a composite understanding of capital, knowledge and discipline. But once you have mastered it, you can easily navigate your way through the ups and downs of the market to remain profitable throughout your reading career.
Mastering trading is a journey in itself and sometimes, it can feel confusing and formidable. Finding and perfecting a trading system involves the complete grasp and assimilation of what we have covered in this article. But with proper understanding, and discipline, it can offer you an income which consistently grows. Happy trading!