As a successful trader for many years, I’ve received this request many times: teach me to trade. Countless times I’ve also been asked by friends and acquaintances for stock tips or financial advice.
The truth is, most successful traders are not economists, market experts or fortunetellers of the financial world. Most traders are mere experts at risk management and reacting to current market conditions. Contrary to popular belief, their time is not spent studying market tendencies, balance sheets or chart patterns.
In an attempt to ‘teach me YOU to trade,’ I have outlined some very important things to know when learning how to trade. Below is three main points of emphasis to review when looking into an investment or trading opportunity.
1. Plan your trades in advance and stick to the plan you’ve put in place; you must have a trading plan for success.
There are plenty of plans and strategies available and just as many people willing to teach you how to trade them. The strategy you choose isn’t as important as how and when you choose to employ it.
A trading plan should include: a position; why you enter; stop-loss point; profit taking level; and a sound money management strategy. The idea is to take out the emotions and subjective nature of trading by sticking to a plan.
2. The trend is your friend. We’ve all heard this before, but it is very important to trade with the flow before getting too creative.
When the market is bullish, get long. On the reverse, if the market is bearish, get short. It’s that simple.
3. Capital preservation is the most important aspect of trading. No matter the market or the strategy, the main goal in trading is to preserve your capital. Many people who teach how to trade fail to emphasize just how important this element is for success.
Do not trade more than 10 percent of your portfolio in a single trade. For example, if your portfolio is 10,000 dollars, every trade should be limited to 1,000 dollars. If you don’t do this, you’ll be out of the market very soon.
For me, these are the most basic and important aspects to learning how to trade. There are people are very experienced and have traded for many years, but are still unable to master these three tips. If you start here and branch out, you will learn to easily trade in any style and you will be able to teach others, as well.
Trading in the Foreign Exchange or Futures markets involves a significant and substantial risk of loss and may not be suitable for everyone. You should carefully consider whether trading is suitable for you in light of your age, income, personal circumstances, trading knowledge, and financial resources. You should only trade with money you can afford to lose. There is no guarantee that you will profit from your trading activity and it is possible that you may lose all or some of your investment. Past performance is not indicative of future results.
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