Over the years of a trading career you collect a lo of wisdom of other traders. At the beginning you mostly don’t understand the meaning behind it. But with more own trading experience you have one aha moment after another.
Below you find my top 10 learnings. I collect that wisdom from my mentors, Market Wizards and other traders. They helped me to get better and better as a trader.
1. Chart your own equity curve
This is a recent advice I learned from Olivier Tischendorf. He wrote a great article about that: How To Profit From Charting Your Own Equity Curve.
If you chart your own equity curve day by day you will have a direct feedback of your trading. You know exactly how you perform, when it’s time to be aggressive and when it’s time to step on the break.
More information in my own article: Learn to manage your own equity curve.
2. Sell a trade quickly if it drops below the breakout point
I am convinced that a trade should be a winner directly from the beginning. All my huge winning trades shows that characteristic. If the trade instead is falling back below your entry point you should sell it quickly. Something seems to be wrong.
Such a radical trade management is not an approach for everyone. You must be very disciplined. But the good thing is you can lower your average loser a lot.
Learn more about it: An example in trade management – the breakout stop.
3. Trade only the strong stocks
There was a time in my trading career where I trade stocks which dropped and then started a new trend. You can name such stocks as reversal stock or turnaround stocks. There is nothing wrong with this approach but it’s not mine. I was never good in it.
Instead I learned to select leading stocks which are strong, printing new all-time highs and show strong volume characteristics. It helped me a lot!
4. Focus on a trading niche
Of course there are traders out there which are flexible and can trade any market. But that’s not me! I believe in focusing on a trading niche. That’s the only way you can gain a lot of experience.
I focus mainly on momentum stocks and leave other markets for other traders. Rarely I trade forex, commodities or indices.
5. Day traders, swing trades and scalpers do not make more money as other traders
A long time I believed that fast traders are making more money that slow traders. But always if I looked into a trade record of a day trader or scalper I noted that’s not true! In a lot of cases the long term oriented traders made more money. How is it possible? Simple: 5% a month is 5%. The approach to create 5% is not important.
That does not mean that there are no good day traders out there. It only means that you don’t have to be a day trader to make a lot of money.
6. Excessive risk-takers are mostly bankrupt
I always was blended by social traders which had accounts with profits of 400% or 1000% in a short time. I always asked myself: How did they do that?
One day I saw a social trading account of such a trader. It has a draw down of 90%! That’s pure gambling. Of course there is a possibility to recover from that. But in the most cases they close the account and start a new one.
7. Clean and simple charts are the best
If you believe you have to make complex technical analysis, you are wrong. I found out that the best trades have very simple chart patterns. There is no volatility and huge price swings. Follow Patrick Walker on Twitter and you will learn a lot about “clean and simple”.
8. Do everything to protect your confidence
Today I know how important confidence is as a trader. But there is not a universal truth what confidence means. Maybe for you it’s your rule-set and blindly follow them. For another trader it’s his ability to select good stocks. The only thing which all have in common is that they believe deeply in their principles. And that’s why you have to defend your principles and believes against any threat.
There are times when my equity curve shows high volatility. In such a time I start to close positions. Yes, sometimes they still fulfill all rules and maybe I am cutting potential profits, but my confidence is more important. If you have a deep draw down you don’t only lose money but mental capital, too! Ed Seykota said famously: You have to know when it’s time to break your rules.
9. There is intuition in trading
There is a myth in trading that you should act like a robot. There was a time when I believed this myth, too. But today I look differently on that thing because I read a lot about the brain and intuition.
Intuition developed with experience. The more you learn about a thing the more intuitive you get about it. It’s like driving a car or cooking. You know exactly what to do without thinking about it deeply. That same experience you can have in trading, too. If you look at hundreds of chats a week, you intuitive know which one looks good and bad.
10. Working on yourself is the best method to mastery
As I started to read books about motivation, psychology, self-development, philosophy and time management I not only got better in my job, I got better as a trader, too. The basing principles of success are the same in any job. You doing outside of your job influences your job.
I absolutely recommend not to read only trading books. Start to read books about self-development and -management, too. You will find a lot of inspiration and you can transfer a lot of methods into your trading world.
Here is a small list of recommended trading books about this topic.
Last update: 2022-05-20 / affiliate links / Images: Amazon Product Advertising API
You first tip 1. Chart your own equity curve is what is holding you back. Listen to Dan Zanger’s podcast They will never get me again.