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To Become a Successful Trader

Kaushal Kishor Singh
14/04/2020 0 0

What you require to be a successful trader? 

 

1) Understanding your psychology- This is the first requirement for a successful trader. Knowing yourself is the most crucial catalyst in the stock market. Knowing your psychology helps in large part because it is the reason why you act the way you do. How much money can you afford to lose? Ask this simple question to know the border of your emotional breakout.

 

2) Planning- Once you know your psychology, you should make a plan. Most of the traders come with the program at the beginning but lose control later. No, you need to have a plan, and you need to stick to that plan only in every situation. Planning is deciding your capital, rate of return per month and week, maximum risk, financial tool(stocks, currency, commodity, derivatives). Successful traders stick to their plans, no matter where the market goes.

 

3) Risk management - Risk management is an essential part of successful trading. It merely means where you should exit in case of losing trade, what risk-reward ratio you should have. Let me clarify this with an example. Suppose you have a risk-reward rate of 1:3. It means with every loss of Rs 1, your target of profit is Rs 3. You traded ten times and lost seven trades(this is worst case scenario). You still are in profit because your total loss is Rs 7 and the damage after deducting from total profit(3*3=9) there is the net profit of Rs 2(9-7) without considering brokerage and other charges. The idea is elementary- when you make benefit make as much you can and when you lose come out of the trade as early you can. But most traders do the opposite. Even if your success ratio is 50:50, you can make a good profit because in the above example, the success ratio is 30:70 and still there is profit. You just need to have sound risk management.

 

4) Capital protecting approach vs profit-making approach- Most of us come to make a profit, but very few traders know that to make money in the long term, you need to protect your capital. There are thousands of opportunities you will get if you have equity, but once you lose it, there will be none. It is why, exit early when you are losing because you will get another chance. We do opposite most of the time. Learn how to protect your capital when things are not in your favour. Once you learn the art of preserving capital, no one can prevent you from making money.

 

5) Keep your social life intact: Trading is an addiction, and it has an impact on your social life, family and friends. Your social life also has an impact on your trading. The point is if your social life is in bad shape, then make it right first and then come to trade. We need a balanced life.

 

6) Use simple strategy- Always have simple and easy to understand approach. For example- a simple basic chart with support and resistance lines along with 2-3 indicators works better than colourful charts with multiple indicators. It's not rocket science so don't try to make it one.

 

Last and significant quote- Success in trading depends on 80% on your psychology and 20% on technical tools you use.

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