I couldn't help myself repeating the same answer to people who trade stocks or people who think they are stock traders. In any given gathering or talk, expect common questions such as:
i. which method do you use to decide whether to buy or sell?
ii. how much money should I put into each trade?
iii. should I worry about not calling the top or bottom of the price?
Of course the answers are as absurd as the questions. There is no right or wrong answer. It is more in between, depending on your trading style. But usually self-traders or private traders or individual traders or whatever you wanna call them, imposing these questions.
Institutional traders are far superior in term of market reach, capital, leverage, trading systems and support services. They have a very systematic algorithmic trading in place to say the least. They called themselves market-makers, since a pool of them could shape the movement of stock indirectly.
So, how could you be, at least, a sound trader?
By now, you should have THREE BASIC Ms; money management, method (trading system) and mind (trading pyschology).
Money Management
I have to put money management as the no 1 ingredient. This is a skill that would differentiate between a novice or a professional. It is very crucial for a trader to understand the risk and reward in his or her trading method. A good money management would help traders to manage the risk at the acceptable rate.
I do not intend to touch too much on the technicality of several principles such as positive expectancy, stop loss and target levels.
In essence, money management sometimes dictate your risk tolerance rate and profitability of your trading. A positive expectancy should produce a profitable trading system. Stop loss, on another hand, would help you to reduce uncertainty and further loss in unfavorable trading environment. Whilst target levels usually would be point of your exits in any trading session.
Method (Trading System)
Trading system is a sum of parameter or variable that determine entry and exit points for any given instruments. These points are also known as signals. On the other hand, many would relate trading systems to the method of choosing the stock or stock screening.
Having a trading system may sound simple but having a system that produces profit, would be the hardest part. I gather that it would take some times to experiment or to tweak in finding the Holy Grail of trading system by yourself. Maybe for a start, you could consider adapting the existing proven trading systems in the market. Some of the proven system are published like Turtle Trading System developed by Richard Dennis and Bill Eckhardt, Joel Greenbalt and The Naked Trader.
Mind (Trading Psychology)
It is equally important to have a good set of mind in trading. If possible, you should shut down your emotions while trading. Some people even develop a trading mind software to basically to train your mind for trading. I remember reading about the psychology of trading in which the stock movement is a sum of emotion of traders.
In trading, you need to be as objective as possible. No indecision. It would eliminate uncertainties in your chosen trades and it would increase your confidence in every trade you made. The stock movement does not reflect on your gut feeling. By using the right trading system, you should have a solid foundation as long as you detach your emotion in your trading session, if possible.
In conclusion, trading is a discipline. Having these 3Ms probably is the best start to get into the game. You can learn them. Maybe for a start, subscribe to one proven trading method that you are comfortable with. Do back-testing, paper trading simulation and establish your own discipline en route to find your ways to be a trader.
Enjoy!
i. which method do you use to decide whether to buy or sell?
ii. how much money should I put into each trade?
iii. should I worry about not calling the top or bottom of the price?
Of course the answers are as absurd as the questions. There is no right or wrong answer. It is more in between, depending on your trading style. But usually self-traders or private traders or individual traders or whatever you wanna call them, imposing these questions.
Institutional traders are far superior in term of market reach, capital, leverage, trading systems and support services. They have a very systematic algorithmic trading in place to say the least. They called themselves market-makers, since a pool of them could shape the movement of stock indirectly.
So, how could you be, at least, a sound trader?
By now, you should have THREE BASIC Ms; money management, method (trading system) and mind (trading pyschology).
Money Management
I have to put money management as the no 1 ingredient. This is a skill that would differentiate between a novice or a professional. It is very crucial for a trader to understand the risk and reward in his or her trading method. A good money management would help traders to manage the risk at the acceptable rate.
I do not intend to touch too much on the technicality of several principles such as positive expectancy, stop loss and target levels.
In essence, money management sometimes dictate your risk tolerance rate and profitability of your trading. A positive expectancy should produce a profitable trading system. Stop loss, on another hand, would help you to reduce uncertainty and further loss in unfavorable trading environment. Whilst target levels usually would be point of your exits in any trading session.
Method (Trading System)
Trading system is a sum of parameter or variable that determine entry and exit points for any given instruments. These points are also known as signals. On the other hand, many would relate trading systems to the method of choosing the stock or stock screening.
Having a trading system may sound simple but having a system that produces profit, would be the hardest part. I gather that it would take some times to experiment or to tweak in finding the Holy Grail of trading system by yourself. Maybe for a start, you could consider adapting the existing proven trading systems in the market. Some of the proven system are published like Turtle Trading System developed by Richard Dennis and Bill Eckhardt, Joel Greenbalt and The Naked Trader.
Mind (Trading Psychology)
It is equally important to have a good set of mind in trading. If possible, you should shut down your emotions while trading. Some people even develop a trading mind software to basically to train your mind for trading. I remember reading about the psychology of trading in which the stock movement is a sum of emotion of traders.
In trading, you need to be as objective as possible. No indecision. It would eliminate uncertainties in your chosen trades and it would increase your confidence in every trade you made. The stock movement does not reflect on your gut feeling. By using the right trading system, you should have a solid foundation as long as you detach your emotion in your trading session, if possible.
In conclusion, trading is a discipline. Having these 3Ms probably is the best start to get into the game. You can learn them. Maybe for a start, subscribe to one proven trading method that you are comfortable with. Do back-testing, paper trading simulation and establish your own discipline en route to find your ways to be a trader.
Enjoy!
