In order to be profitable in trading you need to treat it as a business and be rational. From the day when you decide you want to trade (no matter if you plan to trade stocks or Forex), to the day when you’re developing your plan, creating your trading system and executing it, you need to think and act rationally. That’s not easy but it is crucial.
If you’ve been trading and still can’t make consistent profits, you need to try to adapt your strategy or system. You need to test some new ideas to fine tune your system and take your trading to the next level.
If you’re just starting or if you’ve been trading stocks or forex for some time, but haven’t achieved consistency, the following 25 trading strategies can help you improve your trading:
1 – Be realistic
Many beginner traders set unrealistic goals and fail miserably as a result. Start with small stakes, know where you stand, check your strategy performance and keep working to improve it. No point in trying to make 10 or 20% every month or to make $5000 a month to quit your day job.
Unrealistic goals bring higher risks and traders often kill their accounts before they reach their goals. When you’re starting, focus your energies in trading well and in improving. Avoid making plans to make money or to achieve an outstanding percentage return.
2 – Have the right mindset
This is where it all starts. Confidence can help you succeed in trading. You must not treat the market as a “get rich quick” opportunity. You should rather look at it as a business opportunity and pursue it with great belief, confidence and conviction.
The higher the risk in the market or the volatility, the more beginners go there looking for an overnight success. Don’t fall in that mistake.
3 – Choose a good trading platform
A great advantage in trading Forex, is most Forex brokers offer you a professional charting and trading platform. Some of them even allow you to use Metatrader Indicators or Expert advisors. These trading platforms are often linked to a demo account which allows you to test your strategies and learn how to trade without any risk.
While in the stock market most of the free trading platforms are not as advanced as Metatrader, there are much more platforms to chose from. It’s always a good idea to test multiple trading platforms to know their features and reliability.
With a little research you’ll be able to test multiple platforms here too, so if you want to trade stocks you won’t need to spend any money to test several trading platforms and find your favorite one.
4 – Find out where you stand
Use demo accounts to test your knowledge and see where you stand. Test your trading strategies there and try to reduce the risks as much as you can and to improve your win loss ratio. Take your demo account trading seriously and learn from your mistakes there.
5 – Start trading in a small account
Something to keep in mind is trading is a risky business. Starting with a small account, might be a great way to learn how to trade successfully without risking much money. Most traders feel the urge to trade with as much money as they can, thinking the higher their trading account, the higher the profit potential. But if you think on the risks they take, you realize it’s better to start trading just with the goal of learning and trading consistently than having the goal of making money.
The smaller your account the easier it will be to avoid emotions and remain trading with your plan. If you’re trading with more money than you can afford to lose, it’s easy to feel the stress and the pressure to make money fast.
Remember that if you’re a beginner, you’re just starting to see how everything works and you’re learning how to trade. You’ll have plenty of time to increase the amount of capital invested as you become more familiar with the market itself, as well as with your own strategy.
6 – Learn technical analysis
If you’re just starting it’s a good idea to learn technical analysis and start using trading charts. Learn how to identify the most profitable trading setups, and how to use trading indicators like the RSI, Moving averages or the MACD. This will help you find opportunities with good risk rewards, and to understand when you should stay on the sidelines. A good technical analyst understands why a stock, industry or a currency is moving one way or the other and learns to anticipate future trends.
7 – Use leverage wisely
Using too much leverage is what destroys most strategies and traders. While you can use as much as 50:1 in terms of leverage on the most popular Forex brokers, and even higher leverage in smaller forex brokers, newbie traders shouldn’t use more than 10:1 when they’re starting. This reduces the risk and drawdown and it’s extremely important if you’re not a veteran trader. Most professional traders use 2:1 so they’re just investing $100K for each $50K they have in their account, so the less margin you use the better.
In the stock market the leverage is much lower, so it’s easier to learn how to trade in this market as long as you don’t go through options or exotics in order to get higher leverages.
Some veteran traders don’t even use any margin. Think about it before you “bet the farm” in any trading opportunity.
8 – Use a simple system
Your trading strategy, style and system needs to be simple and flexible. It should give you clear signals and adapt quickly to new market conditions. Simple systems with few indicators tend to outperform complicated ones.
When you’re just learning technical analysis it’s common that you have some tendency to fill your charts with countless indicators and oscillators. But experience will teach you the simple your system or strategy, the better.
9 – Know the best time to trade
This one is specially important in the Forex market. Even though the Forex market is open around the clock, there are better times to trade than others. Opportunities tend to arise on some of the sessions. The best time to trade depends, for example, on the currency pair you want to trade and how much volatility you need to profit.
Just because the market is open 24 hours a day it doesn’t mean you have opportunities at any time of the day. Learn the best time to trade your currency pair and stick to trade just that time zone.
In stocks some day trading strategies only work for a short period of time. Strategies based on the first 30 minutes of the market when volatility is higher won’t work outside this specific time.
10 – Have your own opinion
When you’re looking at the charts to see if there’s a trading opportunity, you’re looking at all the data to form your own opinion. You’re not trading on a rumor or something you heard in the media. You are taking your own decisions and trading with your plan.
No one knows what will happen tomorrow or in the next 10 minutes. So you don’t need somebody else analysis or opinion. If you take your trading seriously, your analysis will keep improving and your analysis and forecast will become at least as good as anybody else’s.
11 – Wait for the price confirmation
Let’s say you analyzed a chart and you’re convinced the currency is oversold and should reverse at any time. You might feel the urge to start a trade against the current trend to catch the bottom. Most of the time that’s a mistake. If you wait for the price confirmation your success rate greatly improves. Your profit potential will be lower than if you had bought at the bottom, but no one can buy at the bottom every single time. The price will show you the way, and if you wait for its confirmation your win/loss ratio should improve.
12 – Manage your trades
You’re looking at the charts on your trading platform, completely focused. You formed your opinion about a currency pair and the price just confirmed you were right. So, now you just entered the trade. But wait, your work is not done yet. Managing a trade may be one of the hardest tasks you have as a trader (in any market). You will need to know how to deal with the uncertainty and the false movements. Risk management is crucial here.
You need to know how to cut your losses short and how to maximize your profits. It seems simpler than it is, because most traders tend to lose their focus and start letting their emotions make the decisions for them. There are several ways to reduce some of the pressure and stress, like using a stop loss order, a trailing stop, or even cutting your position in half once the currency pair reaches a pre-determined target. Take the time to keep an eye on your position and be ready to act and reduce it or close it if needed.
13 – Have the right attitude
No matter how much knowledge, skills and experience you have, you’ll always face hard-times. But if you have the right attitude, you’ll get over them. The first key to success is patience and the second key is being rational. You shouldn’t think about trading as a get rich quick opportunity. And never think it will be easy to make money in any market. As long as you’re in the right mindset and you’re persistent, you should achieve your goals. But realize it will take time and hard work to get you there.
14 – Be disciplined
You need to have the discipline to stick to your rules and to reduce the risks. You need to prepare yourself for your trading day and do your research and analysis before you make any trade. You need to think about the possible scenarios you’ll see in the market today and define how you will react to them. You need to stick with your stop loss and let your winners grow. Without discipline you’ll probably close your winners too soon and you might even ignore one of your stop losses hoping the trend reverses.
15 – Cut your losses fast
A common characteristic shared by most successful traders is they know how to cut their losses quickly. Everyone has a fair share of wins and losses, the difference between successful traders and average traders is the successful traders cut their losses fast so they don’t lose much when they’re wrong. They quickly identify a mistake and fix it.
Cutting the losses is a risk management strategy. You should close a losing position before the small loss turns into a big loss.
In order to maintain risks as small as possible, plenty of traders use a stop loss. This stop loss is defined before you open the position and allows you to know the maximum risk or maximum loss you’re accepting in this trade.
It’s important to note a stop loss won’t work every single time. In news releases or in any announcement that impacts the market, volatility can skyrocket and your stop loss order might suffer some slippage. As any strategy, stop losses won’t work 100% of the time to cut your losses, but they are one of the best ways to manage the risk.
It’s easy to implement a stop loss in your strategy. The difficult part is to detect a trade won’t work as you were anticipating in the first place. Only experience and a solid knowledge of the market you’re trading and your own strategy will allow you to detect a losing trade while it’s still at a small loss.
Technical indicators can help you find out this kind of trades earlier. A reversal candlestick or a strong support or resistance can signal important trend reversal areas. If your trade starts to move against you in these scenarios, the probability of a bad trade is bigger, so it might be time to close the position with a small loss.
Identifying a bad trade is just half of the work. You need to act fast on it and avoid denial or trading on hope. That’s the only way to cut your losses quickly.
16 – Let your profits run
Just as important as to cut your losses fast, you need to let your profits run. Once again it’s not easy and experience will be your best teacher, but there are some strategies you can use to improve your average win. Using a price target is one of these strategies.
If you define a price target when you’re analyzing a trading opportunity, you have a goal. That goal was defined when there were less emotions involved since it’s easier to analyze market conditions while you’re still on the sidelines. Once you open a position, market fluctuations can affect your judgement, so your analysis won’t be as effective when you’re in a position.
If your strategy is solid it’s easier to let your profits run until they reach that price target.
Trailing stops are also useful. A trailing stop is a stop loss that keeps moving while your position moves in your direction. So if you’re long and the stock or currency you’re in keeps moving up, the trailing stop moves up.
The great thing about trailing stops, is they not only allow you to let your profits run, as they allow you to reduce the risks at the same time. A trailing stop also prevents winning trades from turning into losing trades. With all these advantages, you can see why using trailing stops became popular.
17 – Know when to take a break
Losses happen to everyone and you are no exception. If you start to take losses personally or you notice they’re affecting your trading it might be time to take a break. Know when to stop to clear your mind and get the energy to turn around. Pushing yourself too hard or taking hasty decisions tends to aggravate the problems instead of solving them.
You can always come back with a positive mindset and be focused on what you can do rather than pondering about what could have been done to avoid a loss.
18 – Perseverance is the key
You don’t have to be mentally strong when everything works great for you. When things don’t work your way you need to have the strength and dedication to fight and solve the problems. In trading nothing is guaranteed. It’s a challenging business and there is no alternative to perseverance in order to succeed.
19 – Always keep learning
Forex and stock trading is all about new situations and challenges. It gives you new perspectives to look at. Keep learning new strategies and take a logical, rational and constructive approach. In order to be good at something you need to learn everything you can about it, and never stop learning. Read books, blogs, consider getting a trading courses or even seminars and workshops.
When you start trading your goal should be to learn everything you can about it. Once you complete that goal, you need to start making some money. But the 3rd goal is actually the most difficult: to get the consistency in your trading and make money with it month after month, year after year.
20 – Trade with the trend
Before you enter a trade, the first thing you need to check is the prevailing trend. If you can’t see a trend in your chart you might want to zoom out and look for it. If there’s still no prevailing trend, you are in a range bound market, where it gets harder to make a profit. The only way to make money in a range bound market is by buying near the support and selling near the resistance.
If the trend is bullish, it will be much easier to make money by opening long trades, and in a bearish trend the easiest profits belong to the short sellers. The trend is your friend and when you ignore it or you trade against it, your odds of getting a successful trade decrease.
21 – Stop Trying to Pick Tops and Bottoms
Shorting a currency pair or a stock at the top and buying it at the bottom is attractive. If you look at a chart and backtest those kinds of trades, you will see such a great performance you think that’s the way to trade and make money in your trading. Problem is, trying to figure out the max or min for a currency pair, on a specific day or week is impossible. The same happens if you’re trading stocks, options, futures or any other market. I’m not saying you can’t be right once in awhile, but you can’t do it in a consistent way.
Without consistence, you’ll end up by losing most of the days, and you won’t achieve a profit at the end of the month. If you’ve been trying to pick tops and bottoms in any market without much success, you can try the opposite approach: trade with the trend. Try to buy a currency pair when the market is moving up, and shorting it when the market is going down. Often when you trade with the trend your percentage success rate improves. No matter what kind of market you’re trading in, traders that tend with the prevailing trend have better odds of success.
22 – Be an expert in a single currency pair
If you’re trading Forex, instead of spreading your energy and time on countless currency pairs, try just to trade 1 currency pair or 2 max. For example: EUR/USD usually has good volatility and liquidity and a tight spread. So why do you need to follow all the other currency pairs? The more you try to do, the less you achieve in Forex and trading in general. If you stick with a currency pair you will become an expert at it. You will better interpret the setups on it and you will even know when’s the best time to start and close a trade.
In the exact same way, if you’re trading stocks you should reduce the number of companies you follow. Consider becoming the expert in a single industry. If you become for example an expert in Biotechs or Blue Chips you will have much more concentrated knowledge than if you’re try ing to trade any stock that comes by. You can also decide to keep your focus only in Small or in large caps. That’s another way to concentrate your efforts in just a part of the market.
23 – Learn to get out of your comfort zone
There’s no easy money or free lunch in trading. If you’re waiting for that perfect opportunity that works 100% of the time and has no risks, you will be waiting forever. All trades have risks and you need to learn how to deal with them. In fact, some of the most uncomfortable trades become some of the most profitable ones. And most of the “sure things” tend to lose money. Reduce risks as much as possible, but don’t get in state of mind where you can’t take any risk or trading decision.
24 – Avoid overconfidence
If you’re on a winning streak that’s great, but don’t get overconfident. Don’t think you’re smarter than the market and never take success for granted. If you become overconfident you will quickly start making mistakes. And those will be costly mistakes.
25 – Keep Practicing everything: again and again…