Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

NeverLossTrading

What Makes You a Successful Trader or Investor in 2014?

Recommended Posts

Prior to answering this key question, let us clarify the difference between a trader and an investor:

 

From a top-down perspective, there are many elements where both do the same: Participating in the financial markets with assets like stocks, commodities, currencies, treasuries and their derivatives: Futures and options. However, there are behavior differences, where the action of the one is very different to the other: The investor usually takes a longer-term perspective and mostly only makes money when an asset bought, increases in market value. A trader focuses on participating in the short-term price moves of assets and mostly uses methods and trading instruments, which allow making money when prices move up or down.

 

trading-success.png

 

Successful traders and investors manage the following challenges:

 

Challenge-1: Finding assets with a future perspective price move.

Challenge-2: Applying a method of protecting profits.

Challenge-3: Managing risk.

 

Given the circumstances that some assets have price developments: With-, separate from, or against the markets, makes Finding Assets with a price move potential a key challenge. When those are found, the second challenge is to define how far their price move will reach to realize profits or find forms of protection prior to a potential reversal price move.

 

In general, there are two basic methods to identify trade- or investment potentials:

 

Fundamental Analysis: Where you equate financial and other business factors of an observed asset to decide for its future perspective. This is the arena of smart people working for the big investment firms, constantly analyzing the world’s markets and finding assets to invest in. As a private investor; however, if we try to replicate the same; we are facing a hard time in keeping up with the information base and point of view of institutional investors. Their managers have contact to the world leaders of business and politics and use pre-information constantly to their benefit.

 

Technical Analysis: If applied right, a sound chart analysis helps you to spot and follow the action of institutional money moves with a trading system which equates the happening in price, volume and volatility for identifying asset in supply or demand, for you to trade along with the referring price moves.

 

Given the magnitude of more than 40,000 investment instruments in the US-markets only, you might want to find a service, helping you to identify assets with institutional attention, fundamentally or technically.

 

Protecting Profits

 

The equation to consider is: Protecting Profits = Making Profits. A common saying is: “You trade with the trend until it comes to an end”. However, there are two fundamentally different ways of making and keeping profits:

 

Way-1: You find a systematic to trail a critical price level along with the price move of an asset and when the price direction reverses to this level, you either exit your trade or you apply a method of profit protection against a potential counter price move.

 

Way-2: You define positive trade exit price levels by equating the minimum and maximum expected price move from trade entry. When those critical price levels are reached, you either exit or you apply a form of protection to assure that the gains you made cannot disappear from your account.

 

Check the graphics below for examples:

 

Trail Your Stop (Way-1)

 

trailing-stop.png

 

Approximate Min and Max Price Expansion (Way-2)

 

 

 

Managing Risk

 

Managing risk builds the foundation for successful trading or investing. Only when you are able to prevent major draw downs in your trading/investing account, you will be suited for staying long-term in the trading/investing business. If the foundation of your trading system/plan is not standing on solid ground, your temple of success will quickly fall: Always be aware that there is no risk-free trade and the higher you put your return expectation, the higher the risk will be to accept a trade or investment. At the end of the day, a million dollars is a million dollars; however, if you are able to build up a trading plan, where you keep a constant low risk, while producing constant returns from multiple trades, you are better on than aiming for a onetime high return with an associated high risk:

 

Imagine a trader with a $20,000 account, if he aims for a onetime return $10,000 and an associated risk of $10,000. When he fails, 50% of the account holdings are gone and the trader needs a 100% return on the remaining capital to just breakeven. Instead, if he is striving for a $1,000 return/trade with an associated risk of $1,000, he has a much higher probability to being long-term successful, as long as he constantly finds and trades assets with high-probability trade setups.

 

The key question arises: How to define an appropriate risk in relation to the considered return?

 

Our recommendation is to consider two risk levels:

 

The minimum risk is the one you need to accept to allow for a price move in the desired direction, considering the natural price distribution of the asset to trade: Finding this price level prevents that you will be stopped out even so the price moves in your desired direction. If you continuously experience being stopped out and afterwards you see the price taking off, your risk tolerance was too narrow. Best is when a computer programs measure the statistical volatility of an asset at the time to trade, giving you a clear-cut approximation, where to put the stop- or trade adjustment level. Aside from this, you can surely pick a major support or resistance level where the price haltered in the past, at which your base hypothesis of the directional price move will no more have validation when it is surpassed.

 

In addition to the minimum risk, you need to decide for a maximum risk to allow for accepting a trade, with the implication: When the maximum risk level is touched, a trade adjustment is necessary, which can be released or enforced, depending on the continuation of the price development. If your experience from the past was: Small gains, small gains and big losses, your risk tolerance was too wide and you face the danger to drain your account by either having no trade adjustment or stop level or an inappropriately wide risk tolerance, which is not in relation to the potential reward of the trade you entered. For any trader, if the relation from the maximum risk to the expected return is not in your favor, just do not accept the trade. Price levels, where the prices remained for a longer period in the past, can be used to define maximum risk levels. However, you can also help yourself finding those levels by letting your computer build the associated volume-price-relations, so you can see on the chart where the critical price levels are.

 

Prepare for your trading success by installing the elements of asset selection, profit protection and risk management. The knowledge how to apply those instruments to your benefits is not widely accessible, however with the help of this article, you can check and balance where you stand today and how you can create your trading future by gaining the necessary knowledge and obtaining the referring instruments, helping you to develop yourself into the trader or investor you want to be.

Share this post


Link to post
Share on other sites

Really nice Informative news about Successful Trader articles look nice most useful.

 

I like to share my trading experiences i go more Profit when i open live account in Greenvault FX nice Trading Broker for Traders...

Share this post


Link to post
Share on other sites

Being on the safe side is what i would say make u successful. Always buy something u have in depth knowledge of and much bigger chance of a successful investment.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Similar Content

    • By Pro_Traders
      Hi Everyone,
      A lot of people are investing in the stock market as a preparation for retirement days. Yes, it is one primary reason why you should start getting involved in the world of trading but there are other valid reasons you might need to look at. Investing in the stock market means for most people, securing their immediate future and of course hoping that along the way, they earn a considerable amount of cash. Investing in the stock market could give you the power and means to possibly buy the home you've always wanted. While you do not essentially need the full money upfront, you still need the money for down payments to lower down the interest and get a good deal. With a better deal, you will pay less over the years you need to complete to pay the house in full. It also means that you will have immediate equity in your home as an additional bonus. Another good benefit of investing in the stock market is you are not only preparing your future but as well as your children's future. Winning big in the market possibly set up scenarios in which you could send your kids to college for them to start establishing their careers and make their dreams and your dreams a reality. This is yet another long term goal but not that long compared to retirement.

       
    • By divyanshisharma
      Hello All,
      Hope you all doing well, 
      I need to know the simplest strategy for a regular trader who trades daily and earn little to fulfill his/her needs?
    • By inthemoneystocks
      One of the most important reasons why traders take big losses is because they often fail to recognize when a trade has gone wrong. You see, stopping out of a trade is probably the biggest fault of traders and investors. Often, this happens to young and inexperienced traders and investors, but I know many veteran traders and investors that struggle with this as well. Early in my own career I struggled with stopping out of a bad trade myself, so I can sympathize with this problem. 

      The problem with taking a loss is really two fold. First, the trader has to admit that he is wrong. As you all know, as human beings we all hate to be wrong. The ego simply gets in the way and we all want to always be right all the time. The first secret in this business is to check the ego at the door. The market does not care about your the color of your skin, religion or anything else. It will move in the direction of the money and that is the bottom line. Once a trader or investor goes into what I call 'hope mode' the trade is over. I'm sure everyone has been in this position at one time or another. Simply put there is no room for ego or hope in the stock market. The market is always right and there is no reason to fight it. 

      Here is the second problem with taking a loss, it hurts. Pain and pleasure are the two reasons why humans do anything at all. As a human being, we are always looking to have pleasure and avoid pain. Well, losing money is painful and many people would rather simply hold a losing equity than lock in a small loss and move on. I cannot tell you how often I see a trader hold a losing trade only to see the position move further out of the money. Many years ago I watched a day trader blow up a $200,000 account in a single day averaging in on a bad day trade. To this day I can remember the look on his face as his money vanished in thin air. Believe it or not, this trader could have exited the position with a $500.00 loss, but instead he kept averaging in and fighting the position until he was wiped out. As a rule, once you have your full position you should never average in on a trade. At that point, it is critical to know where your max loss is going to be and stop out if that level is breached.

      Now when should we stop out? The answer to this question is not that simple, but here is what I personally do. I always place my stop loss below an important breakout or pivot on the chart. You see, prior breakout or pivot levels are usually defended when retested. After all, this is usually an area where institutional traders and investors got involved, that is why there is a pivot low or high on the chart to begin with. If that level is breached on a closing basis then I will move out of the position. So If I took a trade based on a daily chart pattern then I will usually check the daily and weekly chart levels. If there is a major pivot on the weekly chart then I will use a week chart close as my stop out level. While this method may not be perfect, it has saved me from much bigger losses when I have been wrong.



        Nicholas Santiago
  • Topics

  • Posts

    • Date: 29th March 2024. GBPUSD Analysis: The Pound Trades Higher But For How Long? The global Stocks Markets are closed due to Easter Friday (Good Friday). The NASDAQ continued to follow the sideways trend while other indices again rose. The SNP500 reaches an all-time high, but the NASDAQ remains under pressure from Tesla, Meta and Apple. The Euro continues to trade lower against all major currencies including the US Dollar, Euro and Japanese Yen. The British Pound is the best performing currency during this morning’s Asian session. However, investors are largely fixing their attention on this afternoon’s Core PCE Price Index. GBPUSD – The Pound Trades Higher but For How Long? The GBPUSD is slightly higher than the day’s open and is primary due to the Pound’s strong performance. At the moment, the British Pound is increasing in value against all major currencies. However, the US Dollar Index is also trading 0.10% higher and for this reason there is a slight conflict here. If investors wish to avoid this conflict, the EURUSD is a better option. This is because, the Euro depreciating against the whole currency market avoiding the “tug-of-war” scenario. The GBPUSD is trading slightly lower than the 2-month’s average price and is trading at 49.10 on the RSI. For this reason, the price of the exchange is at a “neutral” level and is signalling neither a buy nor a sell. The day’s price action and future signals are possibly likely to be triggered by this afternoon’s Core PCE Price Index. Analysts expect the Core PCE Price Index to read 0.3% which is slightly lower than the previous month but will result in the annual figure remaining at 2.85%. The PCE rate is different to the inflation rate and the Fed aims for a rate between 1.5% to 2.00%. Therefore, even if the annual rate remains at 2.85%, as analysts expect, it would be too high for the Fed. If the rate increases, even if only slightly, the US Dollar can again renew bullish momentum and the stock market can come under pressure. This includes the SNP500. Investors are focused on the publication of data on the UK’s gross domestic product (GDP) for the last quarter of 2023: the quarterly figures decreased by 0.3%, and 0.2% over the past 12-months. This confirms the state of a shallow recession and the need for stimulation. The data, combined with a cooling labor market and a steady decline in inflation, increase the likelihood that the Bank of England will soon begin interest rate cuts. In the latest meeting the Bank of England representatives did not see any members vote for a hike. USA500 – The SNP500 Rises to New Highs, But Cannot Hold Onto Gains! The price of the SNP500 rises to an all-time high, before correcting 0.33% and ending the day slightly lower than the open price. Nonetheless, the index performs better than the NASDAQ which came under pressure from Tesla, Meta and Apple which hold a higher weight compared to the SNP500. For the SNP500, these 3 stocks hold a weight of 9.25%, whereas the 3 stocks make up 14.63% of the NASDAQ. The SNP500 is also supported by ExxonMobil’s gains due to higher energy prices. The market will remain closed on Friday due to Easter. However, the market will reopen on Monday for the US and investors can expect high volatility. Investors will also need to take into consideration how the PCE Price Index and the changed value of the US Dollar is likely to affect the stock market next week. Always trade with strict risk management. Your capital is the single most important aspect of your trading business. Please note that times displayed based on local time zone and are from time of writing this report. Click HERE to access the full HFM Economic calendar. Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE! Click HERE to READ more Market news. Michalis Efthymiou Market Analyst HFMarkets Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
    • MT4 is good and will be good until their parent company keep updating the software, later mt4 users will have to switch to mt5.
    • $SOUN SoundHound AI stock at 5.91 support area , see https://stockconsultant.com/?SOUN
    • $ELEV Elevation Oncology stock bull flag breakout watch , see https://stockconsultant.com/?ELEV
    • $AVDX AvidXchange stock narrow range breakout watch above 13.32 , see https://stockconsultant.com/?AVDX
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.