Lessons to becoming a successful trader

  1. Don’t overtrade. Don’t get ‘Nickeled to death from trading too frequently. Commissions alone will put a dent in your account.
  2. Don’t get squeezed from buying or selling (shorting) too big for your account size. You may be correct about the direction of the trade but because your trade is too large you will have to keep your stop loss too tight. This often results in you losing the position and watching the trade go off as you thought it would without you on board.
  3. Make sure the overall market trend is in your favor. The trend is your friend. There’s no point swimming up stream or buying in a beat market or selling in a bull market. No need to outwit the market. Go with the flow and make money.
  4. Make sure other stocks in the same industry group are also setting up. This is called ‘sister stock’ confirmation. ‘Cousin stock’ confirmation refers to stocks in adjacent industry groups. For instance XYZ sector may be setting up for a move and you can confirm this with by studying an industry group that’s indirectly related to XYZ group.
  5. Don’t lose your position. In a bull market when you have done your homework and all the signals tell you to hold, it’s imperative not to lose your position or close your trade out for a quick gain. Trust your research and hold for the long haul until the weekly chart presents a sell signal. The buying and sitting is where the money is made.
  6. Never take a loss of more than 7-8%. That means sell before the loss goes further than that. You’re wrong about the trade. Now be right about selling it correctly. Never take a loss greater than 7-8%.
  7. Avoid trading on the news. News is typically factored into the price already, often by at least 6 months. “The real news is not in the headlines.” as Jessie Livermore said. Use price and volume analysis instead.
  8. Trade the strongest industry groups Find the best groups and trade the highest quality stocks within those groups; the stocks with the best earnings.
  9. Watch out earnings release dates for the trades you are in. Earnings bring volatility, consider scaling back your position size or taking partial profits before an earnings release. This of course has to be taking into context accounting for general market conditions etc..
  10. Stay up to date on your learning. Perhaps re-read a stock trading book again to advance your knowledge base. Repetition is a key ingredient to learning success. And remember, keep visiting Trading Room to keep abreast of the biggest winning trades in the market.

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