Without a proper plan, trading is a tough game. But when it’s treated as a job, like being a doctor or a lawyer, the finish line to success can look a lot easier. Here are 7 hacks all traders should use to start winning as a trader faster.
1. Focus on Your Key Setups
As a new trader, you will not be able to master every setup. A jack of all trades does not make money in the stock market, especially when he is new and untested. You need to record all of your trades when you’re starting out, and narrow it down to the setups that you make the most money on and have the best winning percentage. Tradervue.com is a good site where you can journal your trades, and will help you figure out what your best setups are, and cut out the rest that aren’t working.
2. Use Moving Averages
Moving averages are a simple but effective way of determining a stocks’ trend. They can be used to give buy and sell signals, and can act as support and resistance. Moving averages are especially useful when you’re new, and your eyes are not trained yet to recognize what direction a stocks trend is. They’re especially useful for determining when a trend is over, and is reversing the other direction. We use the 9, 20, and 50 MA’s on our charts. The 9 is for the short term trend, the 20 for the intermediate, and 50 for the longer term.
3. Know the Different Time Frames
You cannot just trade stocks on one time frame. You have to analyze stocks on multiple time frames. The 5 minute chart patterns are important, but the daily is a deal breaker, because it tells the bigger picture. A perfect intraday chart pattern is meaningless if there is no context on the daily supporting your bias. For example, if you see a perfect flag break in NVDA on the 5 minute and its right at daily resistance, you might either want to completely avoid that trade or take it with extremely small size. It also helps to look at the intermediate time frame besides the daily and the 5 minute, like a 5 day 30 minute chart, to be able to gauge support and resistance on an intermediate time frame.
4. Proper Risk Management
The best trading strategy in the world cannot be executed without proper risk management. No strategy has 100% win rate, so you have to learn risk management. Proper risk management involves obeying your stop losses, sticking to your targets, and risking a small portion of your account on every trade. Starting out, there is no reason to risk more than 1% of your account on a trade until you have proven that you can consistently pull money out of the market. Remember it only takes one bad trade to end your career in a few hours. With proper risk management rules you can be right half the time and still make money trading.
5. Trading Plan
Lawyers do not show up to court before a case without doing any due diligence. Banks don’t give loans to businesses without a business plan that makes sense. The same is with trading. You need to have a trading plan before you risk any capital in your account. You need to know how much money you’re going to risk, what price your entering at, your stop loss, and your profit targets before you enter ANY trade. When you’re starting out, it helps to write down these four things, the set up you’re taking, and how many shares you’re buying/shorting.
6. Preserve Your Mental Capital
Your mental capital is just as precious as the capital in your trading account. Losing your focus and emotional control will destroy your account. An easy way to waste your mental capital is revenge trading. The physical and mental capital you spent forcing trades on random stocks to make back what you lost. You have to be disciplined, take your losses, and then move on.
7. Continuous Mentorship and Support
Trading by yourself is extremely challenging and can guarantee that it will increase your learning curve. Finding a trading mentor and a trading community is essential for your trading success. There is no reason to make all of the trading mistakes yourself. You can learn from others experience without suffering yourself. Finding an established and qualified mentor will save you years of suffering and thousands of dollars.