MY FIVE (5) BEST TRADING TIPS
Many think of trading as complicated, costly and absolutely risky. Well, it isn’t….if you keep it simple.
If you’re a beginner, you need to understand the basics. And I’m not just talking about terminologies and what buttons to push. I’m talking about the “mindset” that you should have in order to start trading effectively.
So, let me share with you my 5 Best Trading Tips.
1. Know How To Limit Your Risks
You have to learn how to limit your risks. And the easiest way to do it is by using the “2% rule”.
“Never risk more than 2% of your account on any given trade”
For example; If you have a $10,000 account, this means that you should only risk $200.
When you use this rule and lose 10 trades in a row, you will only be down by $2000! Because you only risked 2% of your account on any given trade. This still leaves you with $8000 worth of money to trade.
A common mistake of many traders is this: They hold on to a losing trade for too long! They just HOPE that the stock will turn around.
DON’T make this mistake!
So remember, when you hit your 2% loss limit – get out, move one, find another stock to trade.
2. Take Profits While They Are Still There
You can use my “1:2 rule” for this.
The 1:2 rules means that for every $1 you risk, you try to make $2. So if you invested $100, you need to get out and take profit as soon as you hit $200.
If you use 1:2 rule, you can make money even if half of your trades are losing ones.
How? Because you make twice as much money as you lose on your losing trades!
For example; If you have 5 losing trades, you would lose $500. And if you make 5 winning trades, you make $1,000. So as you can see, even with 50/50 success rate, you would still end up making $500.
3. Trade What You See, Not What You Think
The common mistake people make is that when they see a stock that they like they get excited. They think that it will be the one that will make up for all the money they previously lost and that the stock will go up.
And that’s not always the case. And if this is how you think, then you should get rid of that idea right now because it’s going to hurt you. Its subjective and based on what you can imagine will happen.
Personally, I like to use indicators, because they are “objective”. With indicators, you get clear signals whether you should get into a trend, or when the trade is about to end.
***And here’s another tip. “NEVER” trade using the news!
Why? Because by the time you get to see the information on the news, it’s already old.
Indicators – on the other hand – help you identify “upcoming” trends. This means that you can get in before everyone else and ride the trend for a bit. And then take profits and get out right before the trend ends.
4. Start Small, Grow Big
Think about this; If you can’t make money with a 10,000, what makes you think you can make money with a $100,0000 account? It doesn’t work that way.
You can start with a small account, and then grow it into a bigger one.
By starting with a small account, you are not just limiting your risk. It also allows you to start immediately, as you no longer need to save until you have $50,000 or $100,000.
And besides, these days, you can even start trading with as little as $2000.
So keep it easy, keep it simple – start small, grow big!
5. Practice On a Simulator
You have to do it. PERIOD!
Using a simulator will tell you three important things:
1.) It will tell you if your strategy works
2.) It will tell you if that strategy can make you can make you money
3.) It will tell you if you can execute the strategy consistently
By using a simulator, you already have an idea if you’re entire trading system works… without risking a single penny.
And YES! I know that trading is exciting and that you want to jump right in and things started. I have been there before… but let me tell you a story.
Years ago, when I was new to trading, I had a new strategy. I developed it on paper and backtested it, but I never tried using it on a simulator. I was too confident in my new system and believed that it will make me money. But the minute I started trading it, it started losing.
I said to myself, “that’s absolutely normal…….losses are part of the game”
But the strategy kept losing and I started to worry. On paper, everything looked great. But what I didn’t know was that the strategy had a fatal flaw… and I only realized it when I started trading live and lost much of my money.
Had I traded on a simulator first, I would have seen the flaw, and wouldn’t have lost real money at the same time.
So remember, “ALWAYS” practice on a simulator first before you go live! When I work with private students, I insist they do at least 40 practice trades before you go live.
These are my 5 Best Trading Tips.
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