Trading simply refers to buying something in exchange for something else. But a buying is said to be successful when the trade that takes place proves beneficial. Similarly, when it comes to typical trading involving financial markets, the term ‘beneficial output’ of the buying turns into ‘profit’.
Even though trading is always aimed at making profits but often demands consideration from the trader to bear losses, still, a trader needs to understand that the scope of successful trading is not limited to ‘Profit’ solely. Now here the real definition of ‘successful trading’ evolves, where a trader needs to be first prepared to believe in his/her own conducted research for a particular trade, understanding its benefits along with consequences then decide to trade or risk and further determining the future loop. Once a trader has made the decision to dive into the pool of uncertainty and believes in the power to challenge prediction, the real trade game begins.
Let’s break down trading elements to understand the universal principles a trader needs to inculcate within, to achieve successful trading. Like any other process, a trading action plan involves steps. The cycle of trading can be divided into three phases:
- Pre Trading: Readiness, Research
- Actual Trading: Monetary flow management, Methodology, Monitorization
- Post Trading: Evaluate, Enforce or Eliminate, Explore
- Pre-Trading is a crucial and critical phase and is wholly based on 2R’s theory.
Understanding the Rs:
- Readiness: It is said when you prepare well, you can start well. Similarly, when you are ready for trading, you have an understanding of the pros and cons of the further course of action you are planning for. Besides, you can identify, modify, or replace some critical components of the process to attain any particular trading goal. Readiness not only gives you the strength to dynamic decision making but also prepares you to make use of weakness and turn it into an advantage.
- Research: Any research begins with defining what you want to work on. Here in trading, it becomes a topmost priority to explain what your objective of trading is, which market’s water you want to jump in, and to know how much is the depth of that market. Ideally, the research study should be conducted on choosing the trade market based on the growth, the potential volume of daily changing hands, monetary transparency, liquidity, operational coverage, ease of selling, low transaction costs, and are genuine and efficient.
- Actual-Trading is a core course of action and involves more dynamic execution where an instinctive decision cannot be entertained. A trader has to be entirely focused on 3M’s theory.
Understanding the M’s:
- Monetary Flow Management: Trading and risk most of the time go hand in hand. To cope up with uncertainty, there should always be a balance between the inflows and outflows to ensure that the trader will be able to trade again no matter what happens.
Money management is the crucial element in times of volatility is often underestimated by traders, thus leading them to be an unsuccessful trader. The basic funda is to control risk by limiting market exposure at any times, ultimately ensuring a trader can withstand losses within his/her trading system without knocking the account down. Both over leveraging and trading can ultimately result in exhaustion of the trader and his capital too.
It is also essential in money management not to overlook incurring costs while trading. It is necessary always to keep exploring best rates suitable to your trading volumes, special offers or eligibility criteria for discounts on commissions, etc.
- Methodology: No process could be set up without a plan. Similarly, no planning can be executed without having a proper pattern to work on. Hence, developing a methodology of your trading is base on your sustainability and the consistency of the trading cycle’s future loop.
A trader’s selection of the trading approach becomes his/her trading style which is based upon his choice of money-making in seconds, hours, days or years and so on. No doubt, human tendencies are linked to his/her actions and so its always recommended to develop a trading style that best suits your personality.
Choosing a trading style requires the flexibility to accept when a trading style is not working for you.
Very often the traders keep switching the trading styles and invite trouble and further to happen losing streaks. Once you are comfortable with a preferred trading style, remain consistent with it, and it will reward you for your loyalty for sure. So, choosing your methodology is almost like winning the successful trading game’s entry pass.
- Monitorization: Trading monitorization is nothing but routine in-depth analysis of the trading you are involved in currently or in the past. Monitoring is a backbone to the consistency of your trading cycle. Every trader has a different perspective on the monitoring and analysis part of the trading principles. Just like every trader follows different strategies adopts a different way to measure his/her performance at different timelines.
Most of the time, trading analysis often misunderstood as checking up on stocks, values, buybacks on a daily or hourly basis. No, trading analysis needs to be done strategically by devoting a particular time just to be spent on comparative analysis of the trading currently you are doing vs the past one.
Making a case study, learning weaknesses, an inadequacy that led to unsuccessful trading, and the basis that developing strategies via your example can save you from your possible disruptive events in the future.
- Post-Trading is directly linked up to the actual trading a trader does, and this phase helps in maintaining the sustainability of the trading cycle over a period a trader wishes to trade in the market. Sustainability can be achieved by practicing 3E’s theory. Let’s understand the E’s:
- Evaluate: Evaluation in trading refers to the judging and assessing of all actions you have taken over a day, week, or over any period. It provides insight in analyzing all the activities and statistics of your trades and along with your trading strategy compatibility with the market conditions.
Just as you have worked upon motorization in your previous steps similarly evaluate all trades you did and then go under a self-assessment if there is an area where you are lagging or have gained expertise.
- Enforce or Eliminate: This principle is as simple as its name suggests. Based upon your self-evaluation of the trading strategies find answers to the plan that you adopted made you a better trader or degraded your system. Segregate the good and bad practices and enforce them or eliminate respectively in your next actual trading phase. Executing would help to implement them in every trade which can help to assure benefits whereas elimination to avoid the risks by not repeating the same mistake over again.
- Explore: Remember, Trading is itself a vast field and is considered to be the most sensitive and volatile. So, there is always a scope for a trader to find new facts, opportunities, and glitches in his own actionable as well as the trading system. Hence, a trader should never stop the exploration of new markets, growth hacks, buying trends, etc. Research always helps the trader to improvise by either finding more modern trends or becoming firm to stick to his/her strategies and thus remain loyal towards the market and to its players.
Successful trading is nothing but following the universal principles of the trading process. Right from the preparedness of decision to believe that you possess the ability to trade, find out the correct factors and approaches that suits best to your objective of trading and then leveling up the way to reach the goal of successful trading by adopting few good practices during your actual trading phase by limiting or fueling up the exposure of power that is in your hands. Trading is not just onetime transaction instead is a whole cycle where the inflows and outflows are dependent upon each other to help to keep up the loop on.
So, it is equally required to watch out the pros and cons of every trading that a trader undertakes to survive and achieve successful trading not just once but throughout the whole cycle. Once you command over the above principles, you have already opened a path to actual successful trading and simultaneously keeping track of your goals via the most specific, measurable, and realistic automation approach.