- Psychology: Trading is a miserable experience if your very self worth hangs on your every trade. You must separate your ego from your trading, you do not want wins to make you too happy or losses too make you depressed. In trading you are a business man, you are using capital to create more capital. When you lose money on a trade it has nothing to do with you if you followed your trading plan, the market was simply not conducive to a profit with your system, nothing more, it isn’t personal. Separate your ego from your trading.
- Risk Management: If you want to be successful in trading you have to avoid the risk of ruin. If you risk 2% of your trading capital per trade and you lose ten times in a row then you are down 20%, you need a 25% return to get back to even, you can do that. If you risk 10% of your capital per trade and lose ten times in a row you are at $0 and ruined. If you trade long enough you will have ten losses in a row, plan to stay in business after this happens. Carefully control what you lose.
- Method: You need to trade a method that fits your personality and is proven to win over the long term. Some people love to trade growth stocks, they need to find a method that is a proven winner and trade it. They will need to quantify what can be on their watch list, position size of each trade, and define entries and exits along with initial stop losses. Most importantly stick with the system so they will be trading it when it wins big. Each trader has to find the market they want to specialize in and become an expert. Before trading a system they need to look at the systems historical performance with some form of back testing. Find a winning method that fits your personality and trade it and it alone.
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