Building the “foundations” of trading is essential if you want to make money on funeral markets: the first thing you need to do is to fix these 4 rules well in your head because they are the indispensable foundations if you want to trade for a living.
I make a premise, in all honesty: I don’t trade for a living. However, I have almost ten years of experience because my first blog on trading forex I opened it in 2012, when I started trading. Since then many things have changed, but trading always accompanies me: it is a less than a secondary source of income, but constant.
In addition to mine, however, “I bring you” the experience of professional traders with whom I collaborate and compare myself. Some are friends, some are just social contacts, but everyone has taught me something. I realize that you will almost certainly have to totally revise your beliefs, but believe me, there are no alternatives. The real problem behind the failures is this: the basics are missing.
Living off trading: less is more
Who says that to earn with trading you have to do hundreds of operations per month and always stay on the computer? This is undoubtedly a false belief. In my personal experience I noticed that the more I was on the PC, the lower my performance was, with a lot of stress and anxiety.
In addition, the more you do, the more you earn the broker with commissions.
So what is the best approach to trading? Definitely a minimalist approach, which involves staying on the PC for 20 minutes to a couple of hours a day, operating in the long term without being influenced by the intra-daily movements of the markets, which often create more confusion than anything else. As you may have guessed: no to scalping, which “casually” makes brokers earn a lot with commissions…
Let the profits run with a dynamic stop loss
Letting the profits run means not to stop a profit position at a pre-set limit. In other words, don’t set a fixed take profit and let the price move more naturally without forcing.
An interesting and fairly easy to manage approach involves the use of a dynamic stop loss (trailing stop) that follows the price trend. So the more the price goes up and the more the dynamic stop loss goes up, making the profits run as much as possible and completely mechanically.
Cut your losses if you want to trade for a living
The complete sentence says: “let the profits run and cut the losses”. What does it mean? That if an operation is not going as planned, simply close it.
Obviously do not close a position in a discretionary or manual way, but use a stop loss that makes you lose at most a small part of your trading capital. Generally this sum varies between 1 and 3%.
Bigger is better
Why settle for earning only 1 or 2% for each profitable operation? Considering the previous rules, it is easy to understand that a good trading operation should close with a gain of between 5% and 20% (wow).
So, once again: no to scalping, or you will have to spend hours and hours on your PC doing many operations to put together a decent profit, but the more you do the more you risk losing.