12 Tips Often Quoted By Successful Financial Traders
Reading through books and courses about trading the same points come across time after time.
These 12 facts are quoted constantly by the best and most successful financial traders. With this in mind, it is a very good idea to make note of the points raised.
(1) The price is never too high to go higher and never too low to go lower
Trying to guess market tops and bottoms is the road to ruin. No one gets in a trade at the bottom or the top and if you constantly strive to do this it is more than likely you will continue to lose money.
If a market has made a new high, chances are it will continue to go up as it is in an upward trend. Likewise, when a market makes a new low it may seem cheap but it will probably continue to go down.
(2) Cut your losses and let your profits run
When trading you have to admit it when you are wrong. Sticking with a losing trade because you are sure it will reverse will often lead to bigger losses. Never move your stop loss away from a market. Your stop loss is there to minimise your losses, if you continue to move it away you will lose more money in the end.
Conversely, taking profits too early can also be costly. If you are frightened of losing your profits, move your stop up to lock in some profits. If you use a trailing stop to lock in profits on a good trade you can relax knowing that if the market does reverse you will still come out ahead.
(3) Always have a trading plan
Before you enter a trade have a written plan which decides when you will get out. Adopt a strict money management policy too so a losing trade will not remove a massive amount of your capital.
(4) Never average down
If your trade goes against you it can be tempting to add some more money to "average" out the loss. Don't do it. If you are losing money it is an indication that your opinion of market direction was wrong. Cut the trade, take a step back and look at the market again. If you are still of the same mind, go back in but don't add to loser - remember, losers average losers.
(5) Add to winning trades
If a trade is going your way then you are in the enviable position of being correct. In this case it may be a good idea to add some more to the trade. Bear in mind that it can still reverse so don't add too much that you end up with a huge loss if this happens.
Many extremely successful traders, such as Richard Dennis' Turtles, had a solid plan where they added to winning trades. Pyramiding trades in this way increased their winnings when they were correct.
(6) When you go through a bad patch, cut back on your trading
If you are suffering a period of drawdown, trade smaller amounts. By doing this you are risking less when trades aren't going your way. When your positions begin to do better you can increase your stake again.
(7) Do your research
Before you enter a trade ensure you know about any pending announcements which may affect the price of the market. Also, be aware of important factors such as the NMR. Once you have opened the trade you are in a position where, if you haven't calculated the risk properly, you can lose money very quickly.
(8) If you are unsure about a trade, cut it immediately
On entering a trade, if you are concerned for any reason, cut the trade. This may mean a small loss but it is easier to think clearly when you are out of a market. You can always re-enter the position and doing this avoids unnecessary losses.
(9) Never trade without a stop loss order in place
Stop loss orders are designed to help you preserve your capital. Markets can move very quickly at times and if you do not protect yourself you can end up in a large hole.
(10) Being out of the markets is a position
If a market is stuck in a trading range then trying to trade it may result in several losing trades. It may be more profitable to wait for a signal that the price is moving. Remember, there are hundreds of markets to chose from when you are spread betting and many will not be trending, making it difficult to make money from them
(11) Start small
Overtrading is a common problem for beginners. Start small and try to preserve your capital when you first being to trade. Most spread betting companies will accept bets as little as 50p per point. Making small trades as you get used to trading will stop you getting wiped out in a short period of time.
(12) Only use money you can afford to lose
Never borrow money to trade. If you are using "sacred money" which you can't afford to use you will not be able to make sound decisions. Paper trade and save up a stake before you start trading for real. It's also a good idea to get out of debt before you start trying to make money from high risk methods such as financial spread trading.