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Are you looking for tips from expert traders? Here are some golden rules followed by the pros to take your trading to the next level.
Long-term success can be achieved with perseverance. However, this alone cannot guarantee profitability through the market’s bull and bear runs. Expert traders follow techniques and strategies that can be quickly adapted to changing market conditions.
50% of S&P 500’s best trading days occurred during bear markets from 2010 to 2020, and about 34% of its biggest trading days were in the first two months of a bull run.
Expert tips help identify opportunities in all market conditions. Here are the top 7 golden rules trading pros swear by.
Protecting your capital does not mean you never have a losing trade. It means taking calculated risks. Advanced traders start by evaluating the risk involved in an asset, ensuring that it lies within their risk tolerance limits and then deciding the position size. There are two benefits of doing so:
To assess your risk appetite, consider the following:
A common mistake traders make is not taking profits on time. Even if the trend is following your prediction, remember to book profits. You can exit a part of your open position once the target is achieved and leave the remaining to benefit from further market moves. Capitalising the profit secures your capital and prevents overshooting losses should the market reverse.
Taking profits at regular intervals:
Hard stops are great, but trailing stops are even better. Pros use a combination of the two. Trailing adjusts the exit price at a fixed percentage of the market price in the direction of the trend. The stop remains fixed, when the market reverses. It gets executed if the reversal exceeds the set percentage.
Trailing stop prices rely on trigger pricing, which tends to get compounded during periods of high volatility. Traders must accommodate these factors during risk calculation.
Many traders practise multiple trading techniques to figure out what works for them. Expert traders build a strategy that complements their character and emotional disposition. Make sure that your trading strategy is reliable, trackable, tangible, and well-defined.
A common practice is to make a list of yes/no questions to help you make trading decisions without emotions clouding your judgement.
Always practise on a demo account when you have to update your list. Hitting the books is key to ensuring that you do not make avoidable mistakes.
Healthy self-criticism is crucial for traders. Professional traders do not wait for a stop out to force an exit when they realise they’ve made a mistake. Realising that you have opened a losing position and exiting it as soon as possible saves time and money. You could minimise the loss and use that capital for another trade.
Many traders feel hopeful about assets based on news and social media posts. The market euphoria surrounding cryptocurrencies attracted many traders to open positions. Posts on Reddit have encouraged traders to go long on particular stocks. While it’s important to stay abreast of market sentiment, the focus needs to be on what the charts and your technical analysis is telling you.
No trading instruments are good or bad, and no time is good or bad for trading. Your trading strategy determines which opportunities you should target and which ones to pass. Professional traders tend to group assets that perform in a similar manner. Also, knowing when to sit tight and when to dive in is critical for navigating the global financial markets.
Paul Tudor Jones, George Soros and John Paulson, three of the most celebrated traders of the 21st century, made their best trades by recognising upcoming trend reversals and shorted assets at high leverage.
Traders reach excellence only after recognising that learning never stops. Although the basics may remain the same, the global financial markets respond differently to events over time. This is because the psyche of market participants change over time.
Moreover, one asset class can impact others. The growth of the cryptocurrency market has changed the degree of correlation between assets. Cryptos started being used for hedging inflation and geopolitical uncertainties. You need to keep refining your trading strategy with the evolving financial markets and trading instruments.
Keep a trading journal and record your trades, especially the ones that didn’t work well. Analysing what went wrong gives you an opportunity to correct mistakes.
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