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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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Most new investors and traders enter this field expecting to immediately become successfulTHE ROAD TO SUCCESSFUL TRADING Achieving trading success is not easy. In fact, just getting started can be an overwhelming process. The road to wealth can take many paths. To determine your optimal trading approach, start by making an honest assessment of your financial capabilities. Successful traders only use funds that are readily available and can be invested in a sound manner. It is also critical to accurately assess your time constraints to determine the style of trading that suits you best. If you want to trade aggressively, you can do so using various short-term strategies. If you want to take a hands-off approach, you can structure trades to meet that time frame. All of these choices are less difficult to make if you respect the following trading guidelines. 1. Gain the knowledge to succeed over the long run. 2. Start with acceptable trading capital. 3. Establish a systematic approach to the markets. 4. Be alert for trading opportunities at all times. 5. Develop the fine art of patience. 6. Build a strong respect for risk. 7. Develop a delta neutral trading approach. 8. Reduce your stress level. Gain the Knowledge to Succeed over the Long Run You have to have knowledge to succeed. Most new investors and traders enter this field expecting to immediately become successful. However, many have spent tens of thousands of dollars and many years in college learning a specific profession and still do not make much money. To be successful, you need to start your journey on the right path, which will increase your chance of reaching your final destination: financial security. To accomplish this goal, learn as much as you can about low-risk trading techniques and increase your knowledge base systematically. Successful traders have an arsenal of trading tools that allows them to be competitive in the markets. I have used the word arsenal purposely. I believe that as an investor or trader, you need to recognize that each and every day in the marketplace is a battle. You must be ready to strategically launch an attack using all the resources in your arsenal. Your first weaponknowledgewill enable you to make fast and accurate decisions regarding the probability of success in a specific investment. Is it incongruous to suggest that trading is war and also that to trade successfully one must reduce ones level of stress? I believe not. The most composed and well-armed opponents win wars. The same is true for traders. In most cases, winners will be more comfortable (less stressed) regarding their ability to win. Knowledge fosters confidence. If you are well armed, you will be confident as you go off to fight the battle of the markets. Increased confidence leads to lower stress and higher profits. Start with Acceptable Trading Capital Many investors start with less than $10,000 in their trading accounts. However, it is important to realize that the less you have in your account, the more cautious you have to be. Perhaps the toughest problem is to establish a sufficient capital base to invest effectively. If you begin investing or trading with very little capital, you will assure yourself of failure. Making money in the markets requires a learning curve, and incurring loss is part of the trading process. When it comes to trading, you have to pay to play. You dont need to be a millionaire, but trading does require a certain amount of capital to get started. In many cases, the brokerage firm you choose will determine how much is required to put you in the game. However, no matter how much you begin with, it is a good idea to start out by trading conservatively. If you invest smartly, you can make very good returns and your financial goals will be realized. Establish a Systematic Approach to the Markets The third key to successful moneymaking in the markets is to develop a systematic approach that combines all the weapons in your arsenal to compete effectively in the marketplace. Then, and only then, will you be able to reduce your stress enough to believe in the plan and stick with it. A systematic approach diffuses the inherent madness of the marketplace, allowing you to make insightful trading decisions. Be Alert for Trading Opportunities at All Times By opening your receptivity to opportunity, you will be able to find many more promising trades than you thought possible. Where do you find opportunities? Everywhere. When you begin to train yourself to automatically look for trading opportunities in everything you do, you are on your way to being an up-and-coming successful trader. Develop the Fine Art of Patience Patience is one of the most difficult aspects of trading and investing and extremely hard to teach. I have to work at applying patience conscientiously each and every day, even after years of trading. As a professional trader and investor, I have the opportunity to sit in front of computers all day long, day after day. This is another doubleedged sword. Yes, I have the ability to look for promising trading opportunities because I have lots of information in front of me; however, I also have the opportunity to second-guess great trades due to fluctuations in the market that may be unimportant. Therefore, I have learned that the best investments are those in which I have thoroughly studied the risk and reward and have developed a time frame for the trade to work. For example, if I place a trade with options six months out, I try to stay with the trade for that period of time. This takes patience. Of course, if I reach my maximum profit level before that time, I take that profit and get out. Do not feel that you are at a disadvantage if you cannot trade and invest full-time. This allows you to avoid the noise in the market that occurs each and every trading day. Many of my successful students make more money by not watching the markets too closely. Build a Strong Respect for Risk You must respect risk if you are to survive as an investor or a trader. Before you ever place an order with your broker, make sure you calculate the maximum potential risk and reward as well as the breakeven(s) of the trade. This will help you stay in the game so you can achieve your goals. Risk graphs, which are explored in later chapters, are important tools for assessing risk and reward. Develop a Delta Neutral Trading Approach Delta neutral trading is composed of strategies in which a trade is created by selecting a calculated ratio of short and long positions that balance out to an overall position delta of zero. The term delta refers to the degree of change in an options price in relation to changes in the price of the underlying security. The delta neutral trading approach reduces risk and maximizes the potential return. Effectively applying these strategies in your own personal trading approach generally requires four steps: 1. Test your trading systems by paper trading. Paper trading is the process of simulating a trade without actually putting your money on the line. To become a savvy delta neutral options trader, you will need to practice strategies by placing trades on paper rather than with cash. Although it may not feel the same as putting your money on the line, it will help you to develop practical experience that will foster confidence in your abilities. This will come in very handy in the future. Since there is no substitute for personal experience, you should test all ideas and your ability to implement them properly prior to using real money. 2. Discuss opening a brokerage account with several brokers. Make sure you have a broker who is knowledgeable and fairly priced. Brokers can be assets or liabilities. Make certain your broker is an asset who will help make you richer, not broker. Do not sacrifice service by selecting the broker with the lowest cost. Shop around for the right person or firm to represent your interests. Your broker will play a crucial role in your development as a successful trader. Take your time, and if you are not satisfied, find someone else. 3. Open a brokerage account. Its best to consider a brokerage firm that specializes in stocks, futures, and options. Then you can easily place trades in any market using the same firm. When it comes to trading, flexibility and precision are equally important. Today, some online brokers specialize in options. We provide examples in later chapters. 4. Start small. Any mistakes you make early in your trading career will obviously cost you money. If you start with small trades in the beginning, you will be able to gain the knowledge, experience, and confidence necessary to move on to bigger trades. The bottom line is that a mistake made in a small trade means a smaller loss of capital, which can help keep you in the game. |
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