By VIKRAM
You must have started Day Trading because you wanted to become financially independent or be your own Boss.
You are doing all hard work to be successful…..watching tons of YouTube videos, reading all materials available on Google….attending courses….attending carnivals…Traders meet etc
6 months passed…1 year passed….2 years passed…. you’re still not profitable or maximum at break-even.
If you think you are in to same situation?
Then read on….I have given 5 Tips how you can likely turn in to profitable trader if you follow all these simply to follow methods.
Let’s begin.
1) The law of large number(Probability) in Trading
What is the law of larger number in Trading?
The law of large numbers says that if the probability of something happening is X%, the result will approach closer and closer to that probability the more attempts are made.
This is best illustrated by the example of a coin toss, which has a 50% chance of landing on heads.
If you toss the coin hundred times and record your results, you will find that the result is very close to 50%.
same applies in Trading….Result is close to 50% on big sample of trades…
If the result is relatively poor after hundred trades, you need to question the strategy(provided to you strictly followed your strategy with strict Risk Reward in every trade)
(I highly recommend you to try this experiment at your free time by tossing coin 100 times and write down result on a piece of paper and see whether result of head and tail near to 50%)
And what does it mean?
This means you need a large number of trades (at least a 100) for your “Trading Edge”.
Remember, It’s impossible to be profitable every day, you should have a long term goal, say, at least to stay profitable at the end of each month.
Because your trading results are random in the short run…
You need a minimum of 100 trades, for the law of large number to work in your favor (with strict Risk Reward of min 1:2)
That doesn’t mean now you will start taking 10-20 trades per day to reach 100 trades within next 10 Trading days….You need to take only high probability Trades based on your strategy, not random trades.
But without an “edge” without any back tested strategy, if you start taking random 100 Trades then more likely you are going to blow up your account.
2)Find a Trading Style that suits your personality
I highly recommend you to read the book, Market Wizards, by Jack Schwager.
This book has interviews of top traders in the world, when you finish reading this book you will see every Trader has different style, not all are following same system….that means you need to trade the trading style which suits your personality.
Some of you may get attracted to Scalping, or some of you may get attracted to trend following…some of you may like candle stick charts and some may like market profile charts….some may even like reading data’s like Option Chain, Open Interest analysis, hedging strategies etc. to decide on their trade…so you need to find what suits your personality.
If you ask me, I like simple candle stick chart patterns with simple candle sticks….
Decide which one you like, stick to it and start master that.
3) Develop your Trading plan
But…How to develop Trading plan….
Decide your Capital?
Depends on individual financial capacity (start small)
How much Risk per trade?
My advice is never risk more than 1% of your capital in a single trade.
Decide your time frame?
5 minutes, 15 minutes 30 minutes etc (My suggestion is 5 or 15 min)
Which market you want to Trade?
Stocks, Index, commodity or forex.
You want to be a scalper or Trend follower?
Scalping provide small profit and provides many opportunities in a day trading.
Trend following offers limited opportunities and needs one to have patience to wait, but can offer big profits if you are right.
4)Time to execute your Trade
Once you’ve completed your trading plan, it’s time to enter the market and take your trade.
I would suggest starting really small when you are new, your capital should be small that it should not affect you emotionally even if you are losing.
I am not sure whether you heard of a term called “paying Tuition fee to the market”? Means, even initially you are losing you should take it gracefully as you are paying “tuition fee to the market”, every time you lose you learn something new, and make analysis why you lost and what mistakes you made.
When you execute your trade based on your strategy…. 1 of 5 things can happen.
- Break even(no profit/no loss trade)
- A small win
- A big win
- A small loss
- A big loss
First 4 are fine, but it should never be 5th one, if you can manage one of the first 4 during your initial trading career then you are nearer to become profitable Trader.
How to avoid 5th one? Keeping strict SL in each and every trade and never deviate from it.
Never jump from one strategy to another because you went through 3-4 losing trades, though it’s tempting sometime to try new strategy, but stick to your strategy.
Remember, in the short run, your trading results are random, means you need a minimum of 100 trades, before coming up with a conclusion whether your trading strategy working or not.
5) Record your trades and improve your trading performance
Recording your trades most important in trading, maintain a trading journal and record all your trades whether it is in profit or loss.
How to prepare Trading journal? Read this blog post HOW TO PREPARE TRADING JOURNAL
Along with recording your trades, also important to capture your chart and mention exact place (like marking it on candle) where you bought and where you sold….this screenshot of the chart helps you in future reference.
Conclusion
Finally….Review your trades after 100 Trades (based on your strategy) and find whether your strategy is working?
Once you’ve executed 100 trades consistently, you can review whether your trading strategy has an “edge” in the markets.
If your trading account is growing after 100 trades then congratulations! It is likely that your trading strategy has an “edge” in the market and you have entered into the 10% of profitable traders Club!!
