Becoming a consistently profitable trader involves time as well as strategy. You likely can't consider yourself profitable after one or even 10 winning trades. It's important to understand that losses are inevitable in the financial markets. In fact, sometimes losses are part of a smart strategy. For example, in hedging, one position loses against another.
It can take years of study and more years of trading experience to reach profitability. It requires a good mix of knowledge, smarts, experience, intuition and the ability to evolve.
Want to dive deeper into what it takes to reach trading success? Read on. We’ll walk through our view of trading success, but remember, this individual journey looks different for everyone.
What is Trading Success?
When you experience consistent profitability from trading in the financial markets, you can consider yourself a successful trader. For many traders, this means earning an income trading, but "success" can also mean managing and increasing savings.
Trading success means that you've learned to minimize risks and execute an effective trading strategy. Although there are no definite steps you can take to achieve trading success, check out some signs that prove you're on the right path. You can:
- Develop an edge: An "edge" means you've developed a method or approach to trading that gives you an advantage over other traders in the financial market. To develop this edge, you need to study the market and observe which approach maximizes your chances of making profits. As more and more traders use the same approach, any edge becomes smaller and ceases to exist.
- Have a trading plan: A trading plan includes a strategy for entering and exiting trades, developing rules for managing risk as well as calculating position sizing. If you have the necessary discipline, a trading plan ensures that you only follow a specific strategy, which in turn minimizes risk and allows the edge to make itself appear over time.
- Achieve consistency: Consistency helps you become a successful trader. Traders must execute strategy and regularly participate in the financial markets to gain knowledge and become efficient. Consistency means you aren't swayed by emotions or frenzied by temporary market fads — you can stick to your trading plan.
- Accept losses: It's important to understand the volatility of the financial markets and understand that within each trade, you'll encounter risks. You must also accept losses and move forward by learning what caused them and how to prevent them (or at least reduce their frequency or magnitude) in the future.
Tips to Reach Profitability
Every trader in the financial market wants to reach profitability, and it's crucial to reach profitability using risk. Check out a few tips:
- Maintain a healthy risk/reward ratio: The risk/reward ratio encapsulates the profit that you can make by buying or selling financial security and the risk associated with a trade. This ratio can help you analyze whether the undertaken risks are worth the potential profits on offer. The definition of a good risk-reward ratio depends on the strategy you choose.
- Manage risks: Every trader in the financial market understands that dealing with financial securities incorporates certain risks. You can learn to manage or minimize these risks, which allows you to trade freely and reduce the risk of blowups.
It's easy to fantasize about becoming a profitable trader, but achieving this goal requires dedication, consistency, time, and money. In order to profit from the financial markets, you need to embrace volatility. Even with the proper knowledge, strategy, and execution, a trader will still incur losses.
In some ways, profitable trading is more about risk management than anything else. Therefore, serious traders should learn how to manage risk, letting the profits take care of themselves.
Bookmap, a visualization and trading platform built by traders for traders, contains many tools for decreasing your risk. Try it out for free today.
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