Becoming a successful trader requires certain steps and skills. Such as choosing markets that suit your trading style and schedule, developing or choosing a high-probability trading strategy or system, and good risk management skills. Over the years, we have seen many traders come and go, and we have also seen similarities between those who are good traders. That's why we have compiled eight steps that traders must go through in order to improve their trading and hope that they will start making money in the market.
1. Choose your market
First, you need to choose the market you want to trade, such as currency (forex), stocks or futures. Each market has its advantages and disadvantages. There is no saying that one market is better than another, only that market is more suitable for you.
When choosing a market, consider personal preference, but also whether trading a particular market fits your lifestyle. If you have a very busy job and are unable to view charts and trade during the day, then trading the domestic stock market may not be an option, as the stock market is usually open between 9:30 am and 5 pm. The forex and futures markets are open throughout the week (with some exceptions) and may offer more flexibility.
For example, a trader could trade international currency pairs or commodity futures in the evening after work. Alternatively, a trader could choose a long-term trading approach where they don't have to follow charts during the day, and checking trades once a day might be enough. Choosing the right market is crucial to how you monitor and manage the market and your trades effectively.
2. Find a trading strategy
Now, you need a trading strategy. There are thousands of trading strategies available on the internet, but how do you find the right one? In the first 9 to 18 months, you need to try different types of strategies to understand different ways of timing, managing, and exiting trades. It is recommended that you try a new trading strategy every 3 to 4 months. This will give you enough time to get to know each trading strategy in depth. After 3 to 6 different trading strategies, you should have a good idea of which strategy is best for you. At this stage, it is not important to find a trading strategy that will make you the most profit, but to understand what type of trader you are and which analysis and trading methods fit your way of thinking.
3. Don’t stay on the learning curve
There comes a point where you need to choose a trading strategy and stop constantly trying new ones. It is important to realize that you will not “find a trading strategy that will make money from the start”, but rather it takes a process to make a trading strategy work and adapt to the tools you trade. Additionally, you must become a trader who can execute a trading strategy effectively and without being distracted by emotions. At first, you may find that even if you have a complete trading strategy and solid rules, you are unable to execute trades in an optimal manner. This is completely normal! Becoming a successful trader is a process.
At this stage, you may be tempted to abandon your trading strategy after your first few losing trades. You must resist this urge because 99% of the time, it is not the trading strategy that needs to change, but you. This may sound a little strange, but the next point will discuss this in more depth. Over the years, we have watched and worked with many traders and have seen time and again that many traders have a hard time accepting that even a profitable trading system will lose money regularly. When traders cannot accept the fact that a system may lose money, even if it may be profitable in the long run, they are more likely to jump to new strategies in the hope of finding one that never loses money. The sooner a trader is ready to accept the fact that there is no perfect trading system, the better it will be for their overall progress.
4. Learn from your mistakes
Regularly reviewing or replaying your trades serves two main purposes.
First, most traders will realize that their losses are self-inflicted. This means that most losses are caused by you straying from your trading rules. Sure, there will be times when you do everything right and the trade still doesn’t work. However, in the initial stages, it is more likely that most of your trading losses are caused by you violating your trading rules. This is good news because it means that traders don’t need to change to a new trading strategy, but rather must start working on improving themselves, building better coping mechanisms and improving their discipline. Check each of your recent trades to see if you did something wrong and how to improve your decision making. Additionally, regular trade reviews or replays can also reveal problems with your trading strategy. I recently spoke to a trader who said that although most of his trades would work, 90% of the time price would hit his stop loss before moving back in the intended direction of the trade. In this case, the trader may have used a stop loss that was too close to price, and by giving the trade a little more room, he may have been able to move his stop loss to a higher level.
Some losses turn into profits. Insights like this are priceless and can only be discovered during the trade review process. Unfortunately, most traders do not regularly review their past trading problems and therefore never learn from their mistakes.
5. Backtesting - Speed up the learning process
Backtesting (backtesting) is another great way for traders to accelerate their learning process in addition to keeping a trading journal. In backtesting, traders analyze historical price data by applying their trading rules to find trading opportunities. The goal is to evaluate how a trading strategy and specific trading rules have performed in the past. Traders can gain important insights from backtesting, such as historical win rates, how many trading signals the strategy generates on average, and what the optimal risk:reward ratio is. In addition, backtesting can also help traders improve their chart pattern recognition skills. Most traders use technical analysis, price action, and/or chart patterns in their trading, and in the beginning, your chart pattern recognition skills may not be very good. But by looking at a lot of historical data and doing many backtesting trades, you will be exposed to a variety of different chart scenarios. This will enable traders to more effectively identify good trading opportunities in live trading. The more backtests, the better, and we recommend that you try to spend as much time as possible on backtesting, such as spending 30 minutes on a backtest to quickly provide trading learning capabilities.
6. When to start live trading
Starting live trading means starting to trade with real money. In the first few months, traders usually train themselves using a demo account, where they trade with real market data using virtual money. The question of when is the best time to make the transition to live trading always comes up.
Unfortunately, there is no objectively correct answer when it comes to determining the best time to start trading with live accounts. Before you start trading with live accounts, you should have a good understanding of your trading strategy and should backtest on historical data to verify whether your trading rules have been profitable in the past. However, this does not guarantee that the same rules will be profitable in the future.
7. Expectation Management and Risk
Most traders start trading thinking that trading is a way to make a lot of money in a short period of time. However, after trading for a while, it becomes clear that it is not that easy to make money in the trading market. Despite this, many traders still cannot give up their dreams and they continue to take risks. To make a lot of money, traders must take a lot of risks. High risks usually lead to more margin calls and more losses.
Therefore, in your early days of trading, you should practice risk management, especially position sizing. Typically, trading books and other well-known traders recommend the 1% position sizing rule. This means that you should not risk more than 1% of your trading capital per trade. This is a good starting point because it reduces the possibility of large losses, thereby reducing the possibility of emotional trading and keeping traders from losing more money.
One problem many traders face is that their trading accounts are so small that risking 1% per trade and then potentially getting 3% or 4% in return doesn't really make sense and traders can't take their trading seriously enough. For more articles on risk management, you can search and view them on the "Crypto Emperor Instructor" public account.
8. Make your trading account fatter
Trading requires patience. Traders need patience when waiting for trading opportunities, patience in waiting for good trades to maximize profits, and patience in growing their trading account. Once you have identified a trading strategy, backtested your trading rules to verify that they are likely to be profitable historically, started recording your trades to learn from your mistakes, and practiced safe risk management, it is time to start working hard.
Trading is a long-term process and the proverb "Rome wasn't built in a day" applies 100% to trading. In the beginning, when you are not a full-time trader and still have a regular job, you have some big advantages. First of all, there is no (or very little) pressure to earn an income from trading. Your day job income will provide you with trading funds and daily expenses, and you can trade comfortably. In addition, you can start to increase your account funds by making regular deposits to your trading account. But you should only do this after you have proven over multiple months that you can make profits in a sustainable way over the long term.
