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Nine Basic Principles of Successful Trading [message #2051] Wed, 09 July 2014 13:13
hill4j  is currently offline hill4j
Messages: 13
Registered: May 2014
Location: lagos
Senior Member

1. Don't Try to Predict the Future
I used to think that there were experts and geniuses out there who knew what was going to happen in the markets. I thought that these traders and market gurus were successful because they had figured out how to predict the markets. Of course, the obvious question is that if they were such good traders, and if they knew where the market was going, why were they teaching trading techniques, selling strategies and indicators, and writing newsletters? Why weren't they rich? Why weren't they flying to the seminars on their Jets?

In the light of this, you should know that:
• No One Knows Where the Market is Going
• No One Knows When the Market will Move

2. Know that Market Experts aren't Magicians
Some of the experts that try to predict the markets actually make money trading the markets; however, they don't make money because they have predicted the market correctly, they make money because they have traded the market correctly.

There is a huge difference between trading correctly and making an accurate market prediction. In the final analysis, predicting the market is not what's important. What is important is using sound trading practices. And if sound trading habits are all that is important, there is no reason to try to predict the markets in the first place. This is the reason strategy trading makes so much sense.
• They Don't Profit From Their Predictions
• They Have Learned Trading Discipline
• They Profit From Sound Cash Management & Risk Control
• They Don't Have Superior Performance Numbers

3. Be In Harmony with the Market
We make money trading when we are in harmony with the market. We are long when the market is going up, and short (or out of) the market when it is going down. If we bring an opinion with us while trading, we will end up fighting the market. We keep trying to go long as the market is declining, or we keep shorting a market that it is in a bull phase.

Fighting the market is not good for two reasons. First, we lose money. How much
we lose depends on how well we are managing our money and controlling our
risk. Second, fighting the market affects our judgment, and causes us to try to
confirm that our judgment is correct, or persist in fighting a trend so that we will
eventually prove to be correct. We figure that if we persist long enough, no matter
how long it takes, we will eventually be right.
• Don't Fight the Market
• Let the Market Tell You What to Do and When

4. Have a Healthy Time Horizon
One of the biggest problems new traders have is that they think they will make a
large amount of money right away. They think they will get rich quick.
Traders tend to get wrapped up in current market conditions, the news of the day
and the current trade, usually at the expense of the big picture and profits over
time. A friend of mine used to have a saying, "You can't go broke taking profits."
He was very wrong. You can go broke taking profits. If you take profits before
the market tells you to, or you succumb to fear and close out the trade before its
time, you are focusing on the short-term and forgetting how to make money over
the long haul. Close out no trade before its time.

• Trade for Profits Over Time
• Give Your Trading Strategy Enough Time to Work

5. Understand the Psychological Keys of Trading
There are many people who teach the psychology of trading. There have been
many books written and effort spent on seminars trying to teach the discipline
needed for trading. I don't think trading is that complex. I have developed a few
simple psychological rules for myself, and once you accept them, they should
greatly enhance your ability to trade effectively.
• Accept Losses as a Cost of Doing Business
• Use Historical Statistics
• Let the Market and Strategy Determine the Profits
Don't have an opinion, don't try to predict the market, and don't try to secondguess
your strategy.

6. Don't Trade for the Money
I have heard many successful people, and the one thing that they have in common
is that they love what they do. Many have told me they can't believe that they
actually get paid for doing what they do. They have so much fun they feel guilty
taking money for doing it. Many successful people will tell you that they would do
what they do even if they weren't paid at all.
• Successful People Don't Work for the Money
• Love Trading for Its Own Sake

7. Concentrate on Execution
All of your market and strategic analysis should be done before the markets open.
The strategy design should be clear in your mind. You should have the historical
Performance Summary of your strategy at your fingertips to remind you of the
personality of the strategy, how much money it has made over time, and what its
largest string of losses in a row has been. You should know what kind of orders
you are going to place, and how you are going to communicate this to your

The last thing you should have to worry about during market hours is where the
market is going, and whether to be long or short. Your strategy will tell you all of
this. You should not be concerned about the news, or even if you are making or
losing money. You should not be concerned with analyzing the market, always
reserve this for when the market is closed.
The only thing you should be doing during market hours is concentrating on
effectively executing your strategy. If you can't execute your strategy effectively,
there really is no point in trading. There are two sides to trading, strategy
development and trading execution. During market hours is when you should
concentrate on execution and nothing else.

8. Always Be In the Market
I have always characterized trading the trend as "keeping your costs down while
waiting for the big move." We know that to trade profitably, especially for trend
traders, you need to be in the market for the big move. Many traders stay out of
the market when it's quiet and try to predict when the big move will occur. These
people invariably miss the big move.
Instead of trying to predict when the big move will occur, your task becomes to
minimize your losses and drawdown while you are waiting for the big move to
occur. This is a different way of looking at trading that focuses on managing cash
flow and risk rather than finding magic indicators and making good predictions.
Trading thus moves from a hobby to a business.
The only way to ensure that you won't miss the big move is to always be in the
9. Buy High - Sell Low
Probably the most interesting rule for successful trading is to "Buy High and Exit
Higher, and Sell Low and Exit Lower." This is counter-intuitive to what we all
have a natural inclination to do, which is buy low, sell high. Most great trading
strategies are counter-intuitive. They are not based on our normal human nature
and the normal human reaction to the markets. They consistently make money
because they are designed with market sense not human common sense.
In the final analysis, any market is just a collection of individuals making decisions
and placing money in the market based on these decisions. Most of these individuals are doing what comes naturally to humans, buying low and selling high. Statistics show that 95% of these people lose money.
To be a successful trader, you have to do the opposite of what this 95% is doing.
It isn't easy, because it goes against your human nature. But any strategy that is
successful over time will most likely follow the rule of "Buy High, Exit Long
Higher and Sell Low, Exit Short Lower."

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