4 Tips to Improve Your Trading Results
When it comes to trading, as a newbie, you are probably having some issues. After all, trading is not easy. It takes a lot of skill, time, dedication, and knowledge to become a successful trader. In the beginning, what you are likely trying to do is to improve your trading results.
After all, if you improve your trading results, you will then automatically make greater profits. It’s really just simple math. With that being said, as a newbie trader, you probably don’t know how to go about improving your trading results.
The fact of the matter is that you are going to find tons of bad tips and false information out there. We’re here to provide you with cold hard facts. What we are here to do today is provide you with four tips to improve your trading results once and for all.
These are general tips and rules that can be applied to all traders. From years of education and trading experience, we have compiled the four most important tips that newbies need to adhere to in order to improve their trading results. Let’s go over some valuable pieces of wisdom that apply to every and any trader out there.
Great Traders Usually Always Struggle in the Beginning
Right off the bat, as a trader, what you need to realize is that when you are first starting out, you are likely to suffer lots of losses. We aren’t saying that you are likely to lose a trade here and there. In fact, what we are saying is that you are likely to suffer consistent losses, and heavy ones too.
In the beginning, you are going to make plenty of mistakes, and these will lead to losses. If this phenomenon hasn’t hit you yet, no worries, because you will get there.
So, if most people start their journey with heavy and consistent losses, then how do they become profitable traders? How do you go from losing trades and how do you improve your trading results without getting to the point where you throw in the towel?
One thing you can try doing is trading with a demo account for a while. This will allow you to test the waters and try out some strategies without risking real money. However, you really don’t want to stick with demo trading for too long. It doesn’t come with that same feeling of risk, which leads to many people trading carelessly on demos because they have nothing to lose.
Instead, start trading with a small live account. Start with just $1,000, but treat it as though it is $10,000, or even $100,000. The more successful you become, and the more you improve your trading results via practice, the more money you can add to your account.
Risk management is key, so don’t invest too much money per trade. The bottom line here is that you need to treat your trading account like a business. Start small to reduce the risk of heavy losses, and if you do suffer big losses, at least you won’t blow out your trading account.
Know Your Exit Before You Enter a Trade
Before you enter a trade, there are three things you should always know. You want to know when to exit a trade when you made an error in judgement. You want to know when to exit a trade when you made the right call.
You also need to know when and where to enter a trade when it meets all of your criteria. If you have answers to all of these questions, then you should be able to steadily improve your trading results.
However, if you don’t know the answers to those three points, then you are in trouble. You definitely don’t want to be trying to figure these things out while you are smack dab in the middle of a trade. If you don’t have those answers and you’re already trading, then it is a recipe for disaster.
All too many newbie traders out there know when and where they want to enter trades, but then have no idea how to get out of them in one piece. For this reason, lots of traders become investors. You need to know what your criteria are and when to enter a trade, when to exit when you’re right, and how to get out when you’re wrong.
To master exiting a trade, we recommend doing some in depth research into specific trading strategies. Moreover, getting a comprehensive trading education will certainly help as well. Simply put, to improve your trading results, you actually need to know what you are doing. Your best bet is to master a couple of proven strategies and then trade consistently with them. This is how you will improve your trading results.
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You Need to Manage Your Trading Account, Not Just Your Trades
One thing that all too many newbie traders don’t know is that you need to manage not just your individual trades, but also your trading account as a whole. When it comes to improving trading results in the long run, money management is perhaps one of the most important factors of all.
Moreover, it also depends on how you adapt your money management practices as the days and months go on. You have to be able to adapt, improvise, and overcome. Managing risk when you have $100,000 and are winning trades is not the same as if you have $1,000 and are losing trades. Now, there are three main ways to manage your risk to improve your trading results.
The 1% Rule
First, you want to risk only so much money per trade, by which we mean only a small percentage of your overall trading portfolio. Generally speaking, you should risk no more than 1% of your trading capital on a single trade.
So, if you have $10,000, you want to risk no more than $100 on a trade. However, remember that you need to adapt. So, if you are doing really well, you can risk 2% or even 3% of your portfolio on a trade. However, if you are suffering losses and not doing so well, then risk only 0.5% of your capital on a single trade.
Amount of Open Trades
To improve your trading results, you also need to keep an eye on the maximum amount of trades you have open at once. Now, this does depend on the type of trader you are, and moreover, on what kinds of timeframes you are trading.
For instance, if you are intraday trading, which means that you are trading on short timeframes, then those trades are going to require a maximum amount of attention. In this case, as a newbie having no more than three to five trades open at once is recommended.
However, if you are engaged in long term trading, with trades being open for weeks or even months, then you can have 15 or even 20 trades open at once, as they don’t require as much constant oversight as short term trades.
Your Maximum Drawdown
When it comes to improving your trading results, what your portfolio drawdown looks like matters too. In other words, when you lose a certain portion of your overall trading capital, there comes a time to totally stop trading.
We recommend a maximum drawdown of 40% before you take a step back and really evaluate what is going on, what strategies you are using, and what is going wrong.
In other words, if you blow through 40% of your total capital and are just seeing more losses, you need to take a step back. So, if you go from $1,000 to $600, through consistent losses, then you need to evaluate your plan so you can improve your trading results in the future.
If You’ve Lasted a Year, Your Chances of Making it Are Big
The bottom line here is that in terms of improving your trading results, if you have already lasted a full year, then chances are that you will make it. This is true even if in the grand scheme of things you have lost money. What you need to remember here is that becoming a professional and successful trader takes months, years even.
This whole time, month after month, you are still improving your trading skills. This isn’t something that you can master in a few months. However, if you managed to survive for a full year without totally bottoming out your account, then you are doing something right.
A big tip to help improve your trading results is to have a steady source of income outside of trading, a day job, so to speak. If you rely on trading for your income, you will start chasing profits and you will start focusing way too much on the big profits.
However, focusing on profits won’t improve your trading results. Rather, it will make you trade irrationally in the hopes of scoring big. If you are worrying about money and how to pay your rent, you aren’t going to be the smartest trader. It sounds odd to say, but to improve your trading results, you need to focus on improving your results.
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Improving Trading Results – The Bottom Line
If you keep these four pieces of wisdom about improving trading results in mind, you should have no problems improving your own trading results. All of that said, it all starts with a basic foundation of knowledge. Knowing important trading terms, concepts, and strategies will automatically improve your trading results. For this reason, we strongly recommend getting yourself a basic trading education.
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