What makes some traders consistent winners?
It is the million dollar question. Some claim to have a secret 'system' that consistently beats the odds, some have particular stocks or currencies they track religiously and know inside out. Some pay huge amounts for fancy trading software and tipping services and other trust the trading decisions to robots, in short, there are many, many firms and products that claim to have the secret to consistent profits.
99% of the products and services in the market will end up costing you money. The mistakes I see most frequently are very simple and it may be worth noting them here so you know what to avoid.
1. Money Management
It is the most important issue every trader faces. It overrules every other consideration and that is why it is top of this list. If your trades are too large for the size of your account, you face making a lot of money but the real possibility of a few bad trades wiping you out. I suggest that you use around 5 to 10% of your total account balance for each trade, this gives you the chance to get it wrong and be able to 'fight another day'.
2. Let the trend be your friend
A very wealthy man once said that 'trying to call the bottom of the market is like trying to pinch pennies from in front of a steamroller'. If the market is flying up, it's because there are more buyers than sellers and it makes sense to be one of the buyers at this point, the key is to leave the party before it ends!
3. Decide what suits you best
If you like the adrenaline rush short term trading, focus on these markets. If they are too racy for you, perhaps you would prefer a longer term market. It's worth noting that many successful traders have a handful of longer term positions but often dip in and out of short term markets when opportunity presents itself.
4. Know your limits
Some people can lose £250,000 and take it in their stride, others are miserable when they lose £25.You should have an amount of money in your mind that you can afford to lose should things go against you, and stick to it. If you start making a profit, consider taking some of it back to cover your initial deposit perhaps? If you can afford to risk £2500, trade with £2500. If you can risk £100,000, use £100,000.
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James Sanders is a London based trader and investor. He founded the UK’s largest independent derivatives broker in 2001 and left the City in 2009.