6 Trading Truths
Apr 04, 2024
6 Trading Truths all traders should become aware of!
1) TREAT TRADING LIKE A BUSINESS
2) FOCUS ON THE LONG GAME
3) FIND YOUR EDGE
4) KEEP YOUR MENTAL CAPITAL FULL
5) DON'T TRADE WITH CAPITAL YOU CAN'T AFFORD TO LOSE.
6) PSYCHOLOGY, MONEY MANAGEMENT, STRATEGY.
Trading isn't just about picking placing trades and watching charts; it's a whole lot more. It's like a game where the rules are a bit fuzzy, and the playing field keeps changing. But here's the good news: there are some solid pieces of advice that can help you get better at it. Whether you're just dipping your toes in or you've been at it for years, here are 6 tips to upping your trading game. So, let's dive in it!
1. Treat Trading Like a Business
If you are taking trading serious, you're going to want to start taking trading serious. This means having a game plan that spells out what you want to achieve, how you’ll manage risks, and keeping track of all your moves - wins and losses. It’s about being serious and methodical, just like running a business.
Beyond the plan, treating trading like a business means understanding the markets you're entering, the products you're trading, and the strategies you're employing, just as a CEO understands their market and products. It also means setting aside specific times for trading, reviewing, and planning, rather than trading on a whim.
This structured approach helps you measure your progress and identify areas for improvement. Regularly reviewing your trading journal, where you record all your transactions and the rationale behind them, can provide invaluable insights over time - a saying we like to tell trader's at Hawai'i Trading Academy is "you are your best coach" - as long as you are journaling. By adopting a professional, business-like attitude toward trading, you set yourself up for long-term success rather than seeing trading as just a hobby or a gamble.
2. Focus on the Long Game
Lambos, luxury watches, fancy vacations - I'm sure you've seen it all over social media; It's easy to get caught up in the thrill of quick wins, but the real winners in trading are in it for the marathon, not the sprint.
Think about growth in terms of years, not just days or weeks, let alone overnight! This is a gamblers method. A sound approach helps you make smarter decisions and not jump at every candlestick move in the market. Playing the long game also means understanding that you won’t win every trade. In fact, even the most successful traders deal with losing trades regularly.
What sets them apart is their ability to keep their eyes on their long-term goals and not let short-term setbacks derail their strategies. This long-term perspective allows you to take advantage of compound interest, one of the most powerful forces in investing. Over time, even small gains can add up to significant amounts.
Focusing on the long game also means being selective about the trades you make. Instead of chasing every potential opportunity, you wait for the ones that best fit your strategy and goals. This selectiveness not only improves the quality of your trades but also helps you conserve your mental and financial resources for the opportunities that offer the best chance of success.
3. Find Your Edge
What makes you different from the next trader? Maybe you're a whiz at reading charts, or you've got a gut feeling that's right more often than not - which isn't what we would call a high probability/consistent strategy but whatever it is, lean into it. That's your edge.
It's about playing to your strengths and always looking to get even better (which is why a trading journal is important). Finding your edge often involves a lot of trial and error. It's about experimenting with different strategies, tools, and approaches to see what works best for you.
This could mean focusing on a specific market sector that you understand well, developing or finding trading algorithm, or honing your skills in technical analysis. Once you've found your edge, it's crucial to continuously refine and adapt it as market conditions are always changing.
This ongoing process of learning and adaptation is what helps you maintain your competitive advantage in the market. Additionally, sharing your insights and learning from others can be a valuable way to enhance your trading edge. Engaging with a community of traders, either online or in person, allows you to exchange ideas, strategies, and experiences that can help you see the markets from different perspectives and improve your own trading approach.
4. Keep Your Mental Capital Full
Trading is as much a mind game as it is about money. Keeping your head in the right place means not letting the highs get you too high or the lows too low. It’s about staying cool, calm, and collected, no matter what the market throws your way. This mental resilience is crucial because emotional decision-making is one of the biggest pitfalls in trading.
Fear and greed can lead to rash decisions, like holding onto losing positions for too long or jumping into risky trades without proper analysis. Keeping your mental capital full also means knowing when to step away. Sometimes the best thing you can do for your trading is to take a break, clear your head, and come back with a fresh perspective. This can be particularly important after a tough trading session or a significant loss.
Additionally, incorporating stress-reduction techniques such as meditation, exercise, or having hobbies outside of trading can help maintain your mental well-being. Remember, trading is a marathon, not a sprint, and taking care of your mental health is essential for sustaining performance over the long haul.
5. Don't Trade with Capital You Can't Afford to Lose
This one's straightforward: only play with money you're okay with parting with. Trading with money meant for rent or groceries? That’s a recipe for sleepless nights. Keep it calm by using cash that, if lost, won’t turn your life upside down. The psychological impact of trading with essential funds can be debilitating. It can cloud your judgment, leading you to make trades out of desperation rather than strategy.
It’s also important to have a clear understanding of your financial health outside of trading. Creating a budget and setting aside a portion of your disposable income for trading can help manage financial risk. This approach also helps in fostering a disciplined trading habit, as it limits the funds available for trading, forcing you to be more selective and strategic about your trades.
Additionally, consider setting up an emergency fund separate from your trading capital. This financial cushion can provide peace of mind and further protect you from the temptation to trade with money you can't afford to lose.
6. Psychology, Money Management, Strategy
Getting the hang of trading is a mix of mastering your emotions, knowing how much you’re willing to risk, and having a solid plan for each trade. It’s about balancing these three to make smart, not impulsive, moves. Psychology plays a huge role in trading. Understanding your own psychological triggers and how they affect your trading decisions is crucial. Developing a mindset that helps you stay detached from individual trades and focused on your overall strategy is key.
Money management involves not only deciding how much to invest in each trade but also how to allocate your resources across different trades and markets to maximize your overall return while minimizing risk. Effective money management strategies can help you survive the inevitable losing streaks and capitalize on winning trades.
A solid trading strategy ties everything together. It should be based on thorough research and analysis, tailored to your individual goals, risk tolerance, and market outlook. Your strategy should also be flexible enough to adapt to changing market conditions while providing a consistent framework for making trading decisions.
Conclusion
So there you have it, six nuggets of wisdom to guide you through the trading jungle. Remember, trading isn't a get-rich-quick scheme. It's about being smart, patient, and a little bit bold.
With these truths in your back pocket, you're well on your way to making smarter moves and, hopefully, seeing some nice gains. Happy trading, and remember, it's all about enjoying the ride and learning as you go.
Aloha! We are Glenn & Reid, founders of Hawai'i Trading Academy.
Our Mission: Empower & nurture traders.
Our Ethos: Integrity and transparency guide us as we focus on the essential pillars of trading success: Risk Management, Edge, and Psychology.
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