How to arrange your trading experience and get the most out of your efforts
Why do people trade? To make a profit? To learn something new? To compete against others? All can be true with making a profit the one present among them, but reaching that goal is actually more of a process than a final goal. Just like the cliche, it’s the journey that matters, not the destination.
To make this journey more sensible and worthwhile, a small number of objectives need to be set. The first part of the process is to identify what other targets beside profits make sense and are realistic. These are the building blocks of trading and no trader can mount a serious challenge on the markets without them.
It starts with something easy and straightforward – understanding what you are seeing and doing. The first part of this consists of the terminology involved in trading. This should be the initial target you set your sights on – understanding the most frequently used terms and concepts involved in trading. Without this you are at a disadvantage, even if you do manage to achieve a good win ratio by guessing price directions. By not knowing things like stop loss, take profit and margins, you’re limiting yourself in terms of what you can do. Our advice is to go through the tutorial and stop and look up anything new that you come across, this way placing it in context.
Next are the tools you have at your disposal. Price alerts, trailing stops, sentiment indicators, technical analysis tools – all of them have a role to play and its up to you to choose how much emphasis they get. Their mix forms your trading behaviour and style, but making choices about them can only be done by understanding what they do.
One example of such a tool would be the news feed in the Trading 212 PRO platform – it provides information on what is happening in terms of planned and unplanned news events that influence the markets. A purely technical trader wouldn’t bother with that as s/he relies only on indicators to determine entry and exit points, but for anyone trading shorter timeframes, they would definitely add something to the picture. It’s up to you to test both and find the exact predictability you feel they provide.
A more direct example of a target has to do with something many traders overlook – the size of their deposit. Although trading on margin gives you the chance to trade volumes larger than what you’ve put into your account, that doesn’t mean you should expect to double it every day with genius trades. Just for comparison – until several years ago, banks offered interest rates on deposits of around 3-4% annually and that was considered a nice return, as long as inflation was lower than that level. Successful hedge funds bang the drum if they manage anything above 20-30%.
Of course an individual investor can turn over their deposit many more times and make “sell” positions far more freely than these institutions, respectively the potential for profits is far greater, but so is the risk. So this should be one of the first things you do – set a target for yourself and risk according to your deposit. Compounding profits and increasing the room for error is what trading is all about, not a constant 100% win ratio.
The next target you should try and formulate is the number of trades you’ll be making. This is an important component and one that is closely connected with your trading system if you choose to use one. Depending on the time and effort you can devote to trading, you should predetermine either a number or range of trades you’ll be making per day, week or month. The reason for this is that overtrading is a risk, especially if you start winning or losing more than expected. If the conditions that seem suitable come around more often, then maybe something was wrong with your initial calculations.
Another target is to monitor your time and efforts. Trading is much more like a profession than many people think. Although powerful mobile apps and online tools let you perform analysis that previously took hours of pouring over data, in our fast-paced society time has turned into a scarce commodity. For someone who has a job or other main activity beside trading, a reasonable plan of how much time you’ll spend is something to prepare in advance so that you don’t start putting pressure on yourself while trading (and while resting). Pressure leads to stress, stress leads to mistakes on and off the trading charts.
By making choices about these targets you will, in the end, form your own trading style. It will be adjusted for your own risk tolerance, the time you have available, your deposit, etc. If at some point you have more time or you’ve found a better system or instrument, you can rinse and repeat with every change you try out. In any case you should always lay the wide foundations of knowledge before thinking of the towers of success.