The profession of being a trader in the stock market business is one of the most challenging and rewarding one. It calls for various skills such as discipline , growth mindset , patience , knowledge . Being a profitable trader calls for taking decisions consistently over and over . Even a one big bad trade can ruin the hard earned accumulated profits . It is said only 5% traders are profitable , which means these traders posses a special skill set to maintain their account in the positive territory consistently over rest 95%. In this updated post , we share with our community some of such top critical skills which have to be developed for being a profitable trader over time. These are tried and tested from hands-on experience , recording and analyzing the journals over a series of trades.
Manage Risk , Plan before and enter a trade always with Stop Loss
Most important of all is to learn to take loss equally as taking a win. Always enter the trade with a stop loss value. This is one of the very difficult habit or psychology skill to practice and develop as a discipline. It helps to decide the maximum loss which can be taken if our trading decision is invalidated. Without this skill a trader is never professional and remains as amateur traders. Such amateur traders may have the thought process that a trade will move in their direction , on which they are very confident , with very less thought about what may happen if the result turns out in the opposite direction. In such process of only speculation without risk management on the opposite direction , they may end up waiting for their desired result rather than accepting what market has to offer. This results in large losses eroding the trading capital slowly . As we all know , trading is a business which works on the probability of winning and losing trades and the value of winning and losing trade. A high value losing trade may be larger enough to consume at once the profits of many winning trades. Trader should always keep in mind that market provides unlimited opportunities with new opportunities each day . If capital is preserved without losing much , it makes way with a chances to participate in future trades with probabilities of winning and even recovering those small losses. Deciding stop loss helps to mentally reduce the stress and screen time.
It’s not whether you’re right or wrong that’s important, it’s how much money you make when you’re right and how much you lose when you’re wrong - George Soros
Winning trade profits is twice or more than losing trade losses
At all times objective should be to execute quality trades having a target with minimum twice the risked / stop loss value i.e the Risk to Reward ratio should be minimum 1:2. This practice ensures even when the winning accuracy rate is 50% , across a series of trades , net result will remain in positive.
Sticking to Position size to day limits
As a thumb rule , it is recommended to risk maximum 1% of the capital per trade and take maximum such 2 to 3 stop losses trade in a day. Even when high on confidence after a series of profited trades , discipline of controlling the number of trades per day and avoiding urge of over trading in making more profits is very critical to maintain good capital account.
Maintain journal for each trade
Recording the results of each trade helps to analyze the execution efficiency over a period of time , analyze what went wrong which hit stop losses , analyze results when experimenting a specific strategy.
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