What is the trick to trading?

Trading is a process of analysis and objective financial decision making. There is no one way to approach it. Instead, there are multiple strategies for trading a variety of assets, be this forex, stocks, commodities, indices, futures, and more. So to answer the question of: what is the trick to trading? Well, there isn’t one really. Because is not a game, it requires skill, learning, and mental resilience.

Saying that, there are certain actions, techniques, and mindsets that can significantly improve your chances of success. These include risk management, staying informed of current market trends and technological advancements, engaging in ongoing learning to refine your skills, and maintain a strong psychology.

Reducing trading risk to protect capital

مدیریت ریسک is probably one of the most important “tricks” or elements of trading. Without it, even the best strategy can lead to exponential loss, regardless of your experience. So what are the most common risk management techniques employed by traders to control and minimise risk?

Setting up stop-loss and take-profit orders

These are probably two of the most popular tools used to manage risk, from beginner traders to professionals.  A stop-loss order is a type of order placed with a broker to buy or sell an asset once it reaches a specific price. This is known as the stop price.

The primary goal is to limit the investors loss on a trade by automatically triggering the order when the market moves against their position. A take-profit order is also an order placed with a broker to automatically exit a position when the asset’s price reaches a predetermined profit level. The objective is to lock in gains by closing it once it has reached a favourable price.

Conducting thorough technical analysis

No trading decision should be taken unless the trader has performed some form of technical analysis. Without it, the trader is likely to instead be driven by his emotions rather than objective data, often times leading to adverse outcomes. Learn how to study charts, ensure you monitor signals and economic indicators, and be mindful of shifting market sentiment.

Don’t risk your capital on poor position sizing

Never risk more than a certain percentage of your funds on a single trade. The general rule of thumb is no more than 2% of your capital. In this way, should that trade perform poorly, you aren’t putting all your money at risk of loss.

Consider diversifying your portfolio

Portfolio diversification is the act of spreading your capital across multiple assets, industries, or even geographical regions. The idea is to avoid putting all your money into one trade, and that a poor performing asset in one area can be offset by gains in another.

Stick to your trading plan for discipline

Another “trick” in trading success is ensuring consistency. This means sticking to your plan and preferred strategy or trading style.  Don’t jump from one approach to another in an attempt to recoup losses or chase the wins. Instead, constantly refine your strategy in a way that ensures you remain consistent over time. The focus should be to learn from the outcomes rather than constantly changing tactics.

This is not to say that changes can’t be made to your plan or strategic approach, they absolutely can when the need arises. The point is to not change them entirely, repeatedly, everytime there is a minor setback. Losses are a very normal part of trading – everyone experiences them, no matter how good they are. The point is to accept them and move on.

Build resilience for trading challenges

Another so called “trick” in trading is the ability to strengthen your psychology to a point where it’s not feelings driving your trading decisions, but rather proper analysis, research, and data.

Knowing how to handle your emotions is a very important part of it. Engaging with the financial markets can be incredibly stressful. They’re typically very volatile and prices can fluctuate aggressively within seconds, and often totally unexpectedly.

This can very quickly evoke feelings of fear, stress, anxiety, or even greed and arrogance, all of which can lead to negative behaviours, like revenge trading, holding onto trades for too long in the hopes that the tide will turn in a way for profits to be maximised, or exiting trades far too early, losing out on potential gains.

There are many ways to build up mental resilience to help you cope better with the challenges that trading may throw your way. This includes investing time into mindfulness practices or hitting the gym for a shot of endorphins. It could also be something as simple as walking away from your computer for a few minutes to a couple of hours, giving your brain enough time to calm down before resuming trading again.

Additionally, another way to limit the impact of emotive is to put in place a trading plan that aligns with your budget, skill, and tolerance for risk. A plan should also include the rules by which you’ll trade, specific entry and exit points, and the maximum loss you’re willing to incur.

By having a firm framework of this sort in place, you’re more likely to remain focused and be better prepared to handle market volatilities. Without it, you’ll be setting yourself up for knee-jerk reactions that too often see traders losing all their money at the click of a finger.

Commit to learning trading and growth

Not so much a “trick” but rather an element in trading that separates successful traders from unsuccessful ones is your willingness to keep educating yourself and having the humility to learn from your mistakes. 

No matter how experienced you are, learning should never stop as every trade, win or lose, offers valuable information and insights. So how does one widen their scope of knowledge as well as use missteps as a learning tool?

• Utilise a mix of learning resources to acquire information. This includes videos, eBooks, blogs, courses, podcasts, seminars, webinars, and more. Also utilise useful tools like an تقویم اقتصادی to monitor market-moving economic indicators and releases.
• Consider joining community forums to engage with other traders with whom you can exchange ideas, strategies, ideas, and concepts.
• Use a trading journal. Record all your trades and the rationale behind them. Include the outcome of each trade, and the feelings that the trades triggered. In this way, you’ll have a historical record of past behaviours that may explain why certain decisions were reached, which can then be adjusted going forward to increase the likelihood of more successful financial outcomes.
• Reconsider your trading strategy as your become more experienced and as markets evolve. Don’t remain stagnant, and don’t stubbornly stick to one approach. Make adjustments in a way that will boost your capabilities rather than see you lose your edge.
• Sign up for a demo account to get more practical trading experience (beginners) or to test your strategies, no matter how complex (professionals).  A demo account is great as not only does it offer a simulated trading environment which mimics real life market conditions, you’re also able to open and close trades using virtual funds, thereby not putting your own money at risk. With it you can also learn how to better use technical analysis and become skilled in navigating trading platforms.

Trading with IronFX

Register with award-winning IronFX and enjoy a high quality, flexible trading experience, a range of tradeable assets, multiple account types, and quick and easy trade execution. You’ll also be able to enjoy fast withdrawals and deposits, and market access via the MetaTrader 4 (MT4) trading platform, arguably one of the world’s most popular trading systems amongst global traders. The IronFX Academy also offers an abundant source of educational resources to boost one’s skills and acquire fundamental trading insights.

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