A Market Veteran’s Rules For Successful Trading
Khwezi Trade co-founder Mark Wurr has spent nearly two decades in the financial markets and conducted a study on what separates the successful and the unsuccessful trader.
“In my many years of observing traders, those who achieve good returns have consistently observed certain basic rules and disciplines. It’s not so much the directional indicators they use, but the money management they apply. They set stop losses and don’t change them, so they pull out of losing trades without making too many losses. They also set reasonable profit levels so that they leave something on the table when trades are successful. “
One of the biggest mistakes new traders make is doubling the trade size when they are successful early in trading.
“It has often been said that having early success in trading can be a curse because it invites reckless trading behavior.
“You have two or three good trades in a row, you feel invincible, and then you double down on your next trade, and that’s when the losses start to pile up,” says Wurr.
“Unsuccessful traders will adjust their stop loss levels in the hope that a trade that goes against them will reverse, or they become greedy and refuse to take profits when they are there to be obtained, hoping for more profits, only to watch the market reverse direction.
Wurr and the Khwezi Trade team have put together the following observations that traders should consider when entering the markets.
1. Money management is more important than correctly calling market movement
Making money by trading online with leverage is risky it can be very lucrative, but money is not only made for the market to move properly, it also involves money management. It is important to know that you will not always make a profit and that taking losses is part of the game. Trading is basically trying to take seven steps forward and accepting that you may have to take three steps back. Success in trading comes with the ability to learn from mistakes (and not repeat them).
2. If you are making a decent profit initially, do not immediately increase your position size.
The gears in the financial markets can be a gift or a curse. It allows you to invest with more capital than you actually have, amplifying both your gains and losses. The danger arises when a trader has had some success in trading and, thanks to the gear, doubles the risk capital in the market. Just because you’ve had one or two successful trades doesn’t mean it will happen again. Therefore, do not increase the size of your position relative to the growth in your account size. Instead, reduce the size of your position and thereby reduce your risk. Traders who have just gone through a losing streak want to win everything back on the next trade and thus take exceptionally risky trades that could wipe them out. It is a business ruled by greed and emotion; the two worst enemies of traders. Stick to a conservative plan and build your account bit by bit.
3. Don’t change your stop loss
Stop losses are used to avoid uncontrolled losses when a trade goes in the wrong direction. Unsuccessful traders will move them in the hope that a market reversal will save them from a bad trade. It rarely works and can be fatal. Your stop losses should be calculated based on the risk profile, and if your trade hits your stop loss, this provides you with evidence that the specific strategy you intended to trade has changed, so you should change with it. A stop loss is there to keep your trading plan consistent when it comes to your money management. (You can however change your stop loss if you use it as a take profit).
4. Don’t reverse your position
If you’ve been in a position for a while and the market moves in your direction and you decide to take a profit, the temptation is to reverse the position and go the other way. It’s a bad move. We are all afraid of missing out and the temptation to dive back into the market – in the opposite direction – can be overwhelming. You should stick to your trading rules, with clear triggers for entering and exiting the market.
5. Trade in instruments that interest you and that you know well
Choose the instruments that interest you. In South Africa, gold is part of our economy, so it makes sense to monitor the price of gold. The Nasdaq Index is great because the world of technology is constantly changing and volatility can be fascinating. By observing a few selected markets you can know how they are doing and if there are any deviations it could translate into some great trading opportunities. You will be more confident in making informed decisions when you look at a few selected instruments.
6. Determine market trends
Spend time and determine if a market is in a long term trend or not. Trending markets are best traded by holding your position for a long time, while volatile markets are best traded actively. Decide what best suits your risk appetite and choose your markets and trades accordingly. Your outlook is improved when you study longer time frames as the market tends to stick to the support and resistance levels on those time frames. Longer delays consolidate and filter the noise of shorter delays.
7. Do your technical analysis
This is your study of the charts, and each trader will have a slightly different way of looking at the markets. There are dozens of instructional videos on how to analyze charts and these are available at Khwezi trade. Study the charts, see which technical indicators work for your trading style, and try it out on a demo account before putting real money at risk. In nature, history repeats itself and markets have natural participants, so this same concept applies. Even if you are not using the chart studies it is imperative to look at the charts to get a feel for the market, taking a look at the different time periods will instantly put you in the picture of what happened. and will definitely help you make a more informed decision on how to place your next trade.
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