Less than 10% of traders are profitable long-term; even a smaller percentage can beat the market over time. What this means to the average retail trader, is if you keep trading enough you will go broke.
I had an awful time when I started, losing a lot, breaking even, and then losing a lot. Rinse and repeat. I never fully went broke, just mostly swung my account to a 50% loss rather than getting my account back to break even.
In this article, I explain everything I did right to become a winning trader, removing all the noise. Following this list, at the very least, will help you lose a lot less money. However, if you want to become a winning trader follow this list religiously, and put in the work.
How To Make Money Trading
3 – Master Japanese Candlesticks – You should view all your stock charts via Japanese Candlesticks. Remember the phrase “a picture paints a thousand words”? Well, that’s what Japanese Candlesticks do, they give you a wealth of information just with one Candlestick, and when you piece the days together, you start getting the whole picture. These are a must, as once you get good enough, you can predict future price action much better. Unlike traditional indicators which lag, using Japanese Candlesticks you can predict the future with much higher accuracy. I wrote a guide on Japanese Candlesticks for those not well-versed in them.
4 – Use Backtesting Software – This is where all the money is, you need to develop a trading system. Let’s say you trade 5 and 10 EMA cross-overs, where every time the 5 EMA goes over the 10 EMA you buy, and when the 5 goes below the 10 EMA you sell. You have two choices to execute this system, you can actually do it with real money and learn the hard way that it loses. Or you can put this trading system into backtesting software which will easily tell you this system lags the Market.
5 – Use A Cluster Of Signals When Buying & Selling – Whether you are buying or selling, I recommend using a cluster of signals, i.e. two to three indicators that say you should buy or you should sell. For example having a Japanese candlestick hammer form at the bottom of a Bollinger Band, which is two signals for buying a stock (these two signals mean it’s likely there is a bottom). Relying on a cluster of signals has the added benefit of restricting you from over-trading, as multiple signals confirming a trend happen much less often than you think, but in turn, are much more accurate. You will lose less often.
8) -Automate Your Watch List – Automating at least a portion of your trading is a must, you cannot go every single day looking at every chart and finding good setups. Find a great scanner software, and write scripts on patterns of stocks you like, and from that list, weed out the bad setups. This will save you so much time. I currently use the StockCharts.com scanner to curate my watch list.
10 – Have A Stock Trading Ban List – Do not trade foreign companies, and companies you don’t fully understand. Foreign companies tend to cook their accounting and will make trading their stock unpredictable as one day their stock will crash to 0 (i.e. Chinese stocks).
Also, make sure to trade stocks so that you understand what the company does. Don’t trade some random “holdings” company. When things go bad with a stock, your instinct will be to sell, but if you understand the company it is less likely you will reflex sell, as your conviction will be stronger.
Conclusion
In the guide above, I listed as much wisdom as I could fit into this article, in the hopes of improving your trading. Hopefully, I have given you new ideas on where to start and where you should improve so you can achieve your trading goals! Make sure to follow the links to other articles to expand on topics I’ve briefly mentioned here.