There is a saying in the financial market ‘Trading is the toughest way to make the easiest money’. Money comes easily when things go right in trading. Statistics says that 90% of traders fail in this business. On most of the occasions, things do not go right in trading. Thus, making money by trading consistently is a tough task. There are, of course, so many successful traders who have made billions. To be successful in trading, a trader should know how the successful traders trade, what they do, and what they do not.
What to Have to Be Successful in Trading
There are actually a number of attributes/skills a person should have to be successful in trading. Here are some of them to mention
- Being able to analyse the market technically
- Being able to analyse the market fundamentally
- Understanding the market’s overall psychology
- Knowing trading tools/indicators
- Having a proven strategy
- Being able to apply strategies at the right time
Being Able to Analyze the Market Technically
It is essential for traders to know how to analyse the market technically. Especially, intraday, the H4 and the Daily traders need to have well-acquainted knowledge in technical analysis. Trend, Support, Resistance, Breakout, Retracement, Correction, Consolidation are some basic things of technical analysis. If a trader aspires to make money consistently by trading, he must learn how to identify Trend, Support, Resistance, and Breakout. By examining the market technically, a trader can find out how far a retracement might go; what would be the level to be held for correction/consolidation. Being able to determine those levels, a trader gets an easy picture of the market. Thus, it becomes easy for a trader what exactly he needs to do next. Statistics suggest that the financial markets run technically 80% of the time. This signifies how important it is to get well-acquainted knowledge in technical analysis.
Being Able to Analyze the Market Fundamentally
Big traders love to scrutinise the market fundamentally. News events, Annual report, Interest rate, Central banks’ decision on monetary policy, election, politics, and even natural calamities have an extreme impact on the financial market. Recently, Brexit issue, US election had some serious effect on the market. Needless to say, big traders made millions on those occasions. If a trader aspires to make a fortune out of trading, he will have to learn the art of analysing the market fundamentally. It takes years of experience to be able to read the market fundamentally and make money out of it, though.
Understanding the Market’s Overall Psychology
A trading chart might look good technically to trade at, but there is a big news event in an hour or two. Should an H4 trader take an entry then? It is very usual that just before an hour or two of a big news event market gets sluggish. Since big news events’ often produce spikes, thus it is better to avoid taking entries even though a chart looks suitable for taking entries.
On the other hand, a news event makes a chart to take a big move. An established trend is evident because of the news event. Shall a trader take an entry right away? No, some calculations need be done such as risk and reward ratio, range etc. If there are a good risk and reward ratio and range, it would attract more traders. If not, then the market might go another way. That often happens in the market. A trader has to understand why and when that happens. This would give him ideas about how to read the overall psychology of the market.
Knowing Trading Tools/Indicators
A trader has to have a very good understanding of trading tools such as Fibonacci, Equidistant Channel, Trend Line, Horizontal Line etc. There are some good indicators that have been used in the financial market for years by traders such as Moving Average, MACD, Bollinger Band, RSI, and ATR etc. It is important that a trader understands how they work. Price action traders do not use indicators, in fact, they do not need to. However, even a price action trader should have enough knowledge about those indicators. Price action trading is more effective, but there are many successful traders who only trade based on the indicators too.
Having a Proven Strategy
Having a proven trading strategy and sticking with it are extremely important for a trader to be consistent. It could be a borrowed or an invented strategy by a trader himself, but what most important is it has to be a good and proven strategy. If a strategy’s win rate is at least 65% with at least 1:1 risk reward ratio, this can be called a good strategy.
After a long practice (at least 6 months) on demo accounts and backtesting, if a strategy maintains 65% win rate with 1:1 risk and reward ratio that can be called a proven strategy.
Being Able to Apply a Strategy at the Right Time
This sounds easy, but this is the toughest thing in trading. Being able to apply a proven strategy at the right time is the most important thing as far as trading is concerned. A trader may have two losing entries consecutively with his proven strategy. On the third entry, everything fits to take an entry with the proven strategy, but something comes in his mind. Shall I go with it or not? This may hold him back taking the entry or make him be late on taking entries. In the financial market, especially in intraday trading, every second is crucial. To some extent, a trader has to act like a robot. If a trading chart matches with a proven strategy, it should be executed at the right time, neither a minute early nor not a minute later.
The Bottom Line
Trading is a serious business. It may make a trader earn a lot of money or make him lose a lot. It depends on how a trader has been dealing with it. There is a hard learning curve in trading. Most of the traders ignore it. This is what makes most of the traders be unsuccessful. A trader must learn, practice and be patient with everything he deals with, in this business.