The three pillars of trading successfully
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Becoming a trader can't be improvised. It takes a lot of time, hard work and money to lose. The cycle to becoming a winner in your trading takes several years. Winning on one or more trades is something everyone can do, but winning in the long run is the real challenge. A series of winning trades does not make a good trader, and even less so with exceptional trading performance over a very short period. Many novice traders have trouble understanding what distinguishes a real trader from a simple Sunday punter. There are three pillars to being a winner in trading, to being a real trader.
A trading strategy is what defines your position entry and exit criteria. It is the easiest pillar to acquire for a novice trader. For this, you have to learn the basics of technical analysis: chart patterns, resistances and supports, the main Japanese candlesticks and to know how to use the most well-known technical indicators. To learn this, there is no need to pay for training, there is free content on the web, such as the CentralCharts technical analysis guide for example. :)
All these elements will allow you to build a trading strategy. A trading strategy should remain simple. There is no point in using 3 or 4 technical indicators or looking for the miracle indicator (which does not exist). If there is an essential basis in technical analysis, it is chart patterns and the ability to draw resistances and supports. These two elements are enough to build a simple trading strategy. The other elements (Japanese candlesticks and technical indicators) are more complementary to your strategy, they are generally used to optimize your strategy (using divergences on indicators, analysing candlesticks, etc.).
To progress, there is only one solution, practice the technical analyses. Doing is the best training, the way that we learn. To help you, you can look at the analyses of more experienced traders. But never follow other traders' analysis if you don't know the basics of technical analysis yourself. Through training, you will develop your trading strategy. In the end, it may be based on a particular indicator (Ichimoku, RSI, etc.), on Japanese candlesticks or on chart patterns. You should do it according to your own preferences, use the TA tools with which you feel most comfortable. There are thousands of winning strategies. A trading strategy is not the most important element to succeed in trading, far from it! Having a trading strategy does not make you a good trader, but a trader on the right path to success.
Ah! I forgot perhaps the most important point, all this part of learning trading must be done on a demo account. It's absolutely no use (except losing your money) to start on a real account while you don't have at least one trading strategy. That's the strict minimum.
Money management is risk management but also earnings management. In my view, this is the most important element. I did a twitter survey on the subject and I was pleasantly surprised to see that money management is considered, by you, to be the most important criteria to succeed in trading:
This is often what makes the difference between a losing trader and a winning trader. Risk management is the management of your stop loss but also the management of your capital. Knowing how to place a stop loss is one thing, but if you risk too much of your capital, it doesn't make much sense. Whenever possible, you should never exceed 2% risk on a trade, even 1% for novice traders. This is why the amount that you deposit on an account should not be too small, it should allow you to apply strict risk management. Depending on the assets you trade, this amount varies enormously. For example, processing indices is very expensive, while Forex allows you to further adjust your position sizes (with mini lots).
To learn the basics of money management, use a demo account. Make a few trades scrupulously following your previously established trading strategy. For each type of asset traded, you need to familiarise yourself with the position sizes, understand the influence this has on your account in case of a losing trade. Then try to advance your trading account over a few weeks (still on demo). This will teach you how to optimize the placement of your stop loss at the opening of a trade but also during the trade. Because yes, a stop loss moves as you trade (especially if you swing trade) to first reduce your risk and then protect your gains. It sounds easy to say but it's a very complicated step. This is one of the hardest elements in trading. Moving your stop too quickly will cause you to lose a very large number of trades, and moving it too late (or not moving it at all) can generate heavy losses which are difficult to recuperate. To have good performance when you start with a -2% trade on the account, you have to struggle afterwards to finish in a positive position.
Once you are able to grow your demo trading account in a sustainable way (at least over a few weeks), you can finally open a real account.
This component is very difficult to tame for the simple reason that it cannot be learned. Psychology in trading is managing your emotions. These emotions depend on your personality and especially on your relationship with money. On a demo account, you may feel some emotions but they are usually not very high. It is risking your money that will exacerbate them. For that, there is only one solution, the real account, the baptism of fire! You may have done all the necessary preparation, but you will never be ready for real trading. It is impossible to know how you will react with your money at stake. Money gives rise to many emotions: greed, fear, frustration, anger, denial and so on.
Trading is one of the most effective ways to get to know yourself. It reveals your true nature, your biggest flaws. Strict money management is your best weapon to protect yourself against your emotions. Despite everything, at first, they often take over. Emotions are indeed devastating for both a losing trader and a winning trader. After a series of winning trades, you feel your wings grow, you tell yourself you are the strongest and you lower your guard. Excess confidence is a fearsome factor in trading. It can make you forget your trading strategy (to do more trades and earn even more) or risk management (by increasing position sizes, again to earn more). On the other hand, after a series of losing trades, you lose your means, you get angry, you curse yourself for having lost your hard earned money. Your emotions will then make you take more risk in order to make up for your loss.
Whether you are winning or losing, from the moment you increase your risk, it is already too late! You will end up razing your trading account sooner or later. It is very difficult to become rigorous again and to apply a strict money management after having increased your risk (even if you tell yourself that it is temporary). Despite all the warnings I can give you, you will sooner or later go through this step. That's the price of training. I don't know a trader who hasn't razed a trading account. When this happens to you, do not, on any account, replenish your trading account. Move on to other things for several weeks. It takes time to digest the fact that you just threw your money out of the window. If you trade again too quickly, your emotions will still be too high and you will make the same mistake. Unfortunately, this is what far too many beginner traders do. Yet that's what it all comes down to. Come back rested, only time makes us learn from our mistakes.
A few weeks later, you can put money back into your account. But be careful, it's very dangerous to invest more than 10% of your savings. To invest more, you must already be sure that you can earn over the medium/long term. In trading, your goal should not be to win but to last. If you last, you'll end up being a good trader.
Pillar 1: Trading strategy
A trading strategy is what defines your position entry and exit criteria. It is the easiest pillar to acquire for a novice trader. For this, you have to learn the basics of technical analysis: chart patterns, resistances and supports, the main Japanese candlesticks and to know how to use the most well-known technical indicators. To learn this, there is no need to pay for training, there is free content on the web, such as the CentralCharts technical analysis guide for example. :)
All these elements will allow you to build a trading strategy. A trading strategy should remain simple. There is no point in using 3 or 4 technical indicators or looking for the miracle indicator (which does not exist). If there is an essential basis in technical analysis, it is chart patterns and the ability to draw resistances and supports. These two elements are enough to build a simple trading strategy. The other elements (Japanese candlesticks and technical indicators) are more complementary to your strategy, they are generally used to optimize your strategy (using divergences on indicators, analysing candlesticks, etc.).
To progress, there is only one solution, practice the technical analyses. Doing is the best training, the way that we learn. To help you, you can look at the analyses of more experienced traders. But never follow other traders' analysis if you don't know the basics of technical analysis yourself. Through training, you will develop your trading strategy. In the end, it may be based on a particular indicator (Ichimoku, RSI, etc.), on Japanese candlesticks or on chart patterns. You should do it according to your own preferences, use the TA tools with which you feel most comfortable. There are thousands of winning strategies. A trading strategy is not the most important element to succeed in trading, far from it! Having a trading strategy does not make you a good trader, but a trader on the right path to success.
Ah! I forgot perhaps the most important point, all this part of learning trading must be done on a demo account. It's absolutely no use (except losing your money) to start on a real account while you don't have at least one trading strategy. That's the strict minimum.
Pillar 2: Money management
Money management is risk management but also earnings management. In my view, this is the most important element. I did a twitter survey on the subject and I was pleasantly surprised to see that money management is considered, by you, to be the most important criteria to succeed in trading:
This is often what makes the difference between a losing trader and a winning trader. Risk management is the management of your stop loss but also the management of your capital. Knowing how to place a stop loss is one thing, but if you risk too much of your capital, it doesn't make much sense. Whenever possible, you should never exceed 2% risk on a trade, even 1% for novice traders. This is why the amount that you deposit on an account should not be too small, it should allow you to apply strict risk management. Depending on the assets you trade, this amount varies enormously. For example, processing indices is very expensive, while Forex allows you to further adjust your position sizes (with mini lots).
To learn the basics of money management, use a demo account. Make a few trades scrupulously following your previously established trading strategy. For each type of asset traded, you need to familiarise yourself with the position sizes, understand the influence this has on your account in case of a losing trade. Then try to advance your trading account over a few weeks (still on demo). This will teach you how to optimize the placement of your stop loss at the opening of a trade but also during the trade. Because yes, a stop loss moves as you trade (especially if you swing trade) to first reduce your risk and then protect your gains. It sounds easy to say but it's a very complicated step. This is one of the hardest elements in trading. Moving your stop too quickly will cause you to lose a very large number of trades, and moving it too late (or not moving it at all) can generate heavy losses which are difficult to recuperate. To have good performance when you start with a -2% trade on the account, you have to struggle afterwards to finish in a positive position.
Once you are able to grow your demo trading account in a sustainable way (at least over a few weeks), you can finally open a real account.
Pillar 3: Psychology
This component is very difficult to tame for the simple reason that it cannot be learned. Psychology in trading is managing your emotions. These emotions depend on your personality and especially on your relationship with money. On a demo account, you may feel some emotions but they are usually not very high. It is risking your money that will exacerbate them. For that, there is only one solution, the real account, the baptism of fire! You may have done all the necessary preparation, but you will never be ready for real trading. It is impossible to know how you will react with your money at stake. Money gives rise to many emotions: greed, fear, frustration, anger, denial and so on.
Trading is one of the most effective ways to get to know yourself. It reveals your true nature, your biggest flaws. Strict money management is your best weapon to protect yourself against your emotions. Despite everything, at first, they often take over. Emotions are indeed devastating for both a losing trader and a winning trader. After a series of winning trades, you feel your wings grow, you tell yourself you are the strongest and you lower your guard. Excess confidence is a fearsome factor in trading. It can make you forget your trading strategy (to do more trades and earn even more) or risk management (by increasing position sizes, again to earn more). On the other hand, after a series of losing trades, you lose your means, you get angry, you curse yourself for having lost your hard earned money. Your emotions will then make you take more risk in order to make up for your loss.
Whether you are winning or losing, from the moment you increase your risk, it is already too late! You will end up razing your trading account sooner or later. It is very difficult to become rigorous again and to apply a strict money management after having increased your risk (even if you tell yourself that it is temporary). Despite all the warnings I can give you, you will sooner or later go through this step. That's the price of training. I don't know a trader who hasn't razed a trading account. When this happens to you, do not, on any account, replenish your trading account. Move on to other things for several weeks. It takes time to digest the fact that you just threw your money out of the window. If you trade again too quickly, your emotions will still be too high and you will make the same mistake. Unfortunately, this is what far too many beginner traders do. Yet that's what it all comes down to. Come back rested, only time makes us learn from our mistakes.
A few weeks later, you can put money back into your account. But be careful, it's very dangerous to invest more than 10% of your savings. To invest more, you must already be sure that you can earn over the medium/long term. In trading, your goal should not be to win but to last. If you last, you'll end up being a good trader.
