20 Essential Skills for Traders

 

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1. Stop Losses SAVE LIVES! – It’s hard to go broke taking 8% losses, but 50% losses are very hard to recover from. Don’t let losers run, cut you loses and move on. Carrying losing trades messes with your psyche.

2. Know the Difference Between Trading and Investing – You are either a trader or an investor, you can’t be both.

3. Trade For Skill, NOT the Money – If you’re focused on the money aspect of trading…you’re not focused on the ‘trade’. I view trading as a game where I am matching my intellect against other market participants. The money is just how we keep score.

4. Know What You Are Trading – Don’t go trading all sort of crazy inverse ETF’s or Chinese internet stocks just because you read about them in the media. Only trade something you understand and can explain to your wife / husband in 50 words or less.

5. Focus On Your Executions. Remember, every execution is a trade. Don’t leave money on the table just for the sake of getting filled quickly. Never place a Market order.

6. Risk Management and Admitting Mistakes Is Crucial – Risk management is the most important aspect of your trading and what sets good traders apart from great traders Don’t be stubborn in holding a position. Don’t be stubborn and think the market will come around to your way of thinking, because The Market Is Always Right. The best traders are the first to that they made a mistake.

7. Continue Learning. Learn something new every day (or at least every week). Read a book per month. The best people to learn from are experienced and SUCCESSFUL traders. The ‘Winning’ AND ‘Losing’ trades can teach you something.

8. Remember That Even The Best Traders Lose Money. Learn to accept your losses and move on to the next trade. That’s just part of the business – you will NEVER win 100% of the time. If someone tells you they do, give them a slap in the face from me.

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9. Paper Trade – Then, Use Only 1 Contract At The Beginning. Don’t jump in straight away and try to hit the ball out of the park. Be patient and learn as you go by paper trading first and then keeping position size small when you go live. One of the worst things that can happen to you as a trader is to start out with BIG winners. Large wins means large exposure, and sooner or later that large exposure will come back to bite you on the ass.

10. When in Doubt, Get Out (or Stay Out)!! Having trouble analyzing the market? Not sure what the trend is? Stay out until things become clearer and an entry point presents itself. Remember, cash is a position too!

11. Have a Trading Plan – Seems simple, and I’ll be honest it’s a bit boring, but you can’t survive in this business if you don’t have a trading plan. 80% of people don’t and I guarantee you they are unsuccessful. Have an overall trading plan, and a detailed plan on how you will trade each different strategy.

12. Ego and Overconfidence Are Your Absolute Worst Enemy – Many traders worst losses come right after a fantastic winning streak. Don’t let your ego get the best of you, because the market has a way of humbling even the greatest of traders.

13. Don’t Overtrade. Trading commissions add up. Trading for the sake of trading is a terrible idea. Be patient and wait for the best opportunities.

14. Be Logical, NOT Emotional. Emotions can help destroy you as a trader – be very logical and follow your trading rules.

15. Be Patience. Do not force trades when there are none.

16. Be Diligent. Do your homework and preparation before each and every trade. Hard work pays off.

17. An Opinion Is Not A Position And A Position Is Not An Opinion – Just because you are bullish, doesn’t mean you have to trade the long side. Likewise, just because you have a long position does not necessarily mean you are bullish.

18. Monitor Watching Can Lead to Poor Performance – Being obsessed with a particular market can force you to start monitor-watching. This will play on your emotions and may affect your decision making skills. Take a break, walk away from you screen for a while and come back with a clear head.

19. Always Select Realistic Entry AND Exit Points AND Write Them Down. This goes hand in hand with doing your homework and preparation before each and every trade. Most people only think of the entry point of a trade, but in actual fact, it’s the exit that is more important and harder to manage.

20. Maintain a Trading Journal and an Accounting System – Monitor your open trades daily and try to limit them to 2-3 long trades and 2-3 short trades (if that’s your comfort level). Review you trades and overall performance every month to see where you can improve. Keeping good records is important for your growth as a trader.

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6 Comments
  1. LenS says:

    Thank you so much Gav! This is excellent!

  2. Rob F. says:

    Gavin; i’ve been trading a demo account in TOS for two years now, They start you with $100 K, within a year I was at $850K. Right now my balance is about the same, taking too many risks with too much of the fake capital. Now for my real account, I’m down 50% for 2012, hope 2013 make a difference, but started with much less, $9,000. Looking at you comments, all of these were in my head during trading at some point or another. One in particular, is when too much information clouds the basics, Surprisingly, as much as I like TOS for its incredible power with options trading, sometimes I have to force my self to break away as you said and get another perspective of the market and the trade. That said, i also have an optionsxpress account. I have actually had it longer, but I do not like the platform, it’s an IRA and I do better in the account than my TOS account? So my conclusion, and as said by many? this is more a mental game that anything, and especially with options. But playing it with a plan with specific actions at specific greeks or targets really does take the human element out of it, essentially GETTING ME OUT OF THE WAY OF MY SELF!

  3. Gerald says:

    Hi Gav, I like the structure and analysis. Even advanced traders should be aware of the issues and take care. Trading is learning and adapting.

  4. Kris says:

    Hello Gavin,

    Thanks for your very valuable and extremely useful information. You are one of the best and I am very grateful to you. best wishes and warm regards.

    1. Gavin says:

      Hi Kris, thanks for the kind words and for being such a great supporter.

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