Whiteboard Wednesday - 5 Easy Steps to Sharpen Your Trading Skills

By GKFX Team  |  15/03/2017 14:03

1. Keep Things Simple

Trading is hard enough without over complicating things, just because it looks complicated doesn’t mean that it's more successful.

2. Stick To Your Trading Plan

Before you start trading, and before emotions take over you thought about a trading plan. Stick to it! Don’t let the emotions of trading change your view.

3. The Trend Is Your Friend

Picking tops and bottoms of markets is a foolish past time if the markets have been rallying for months the likelihood of them turning around just because you traded is very small. The trend is your friend, apart from the bend at the end.

4. Trading On a Demo Is not The Same as Live Trading

Use your demo account to learn about the software you are using, it’s hard enough without making mistakes around technology.

5. Take Some Profits

Don’t be greedy when you trade, if the profits come in then take some off the table. Remember you can partially close a position and leave the rest to run.

Video Transcript:

Hello and welcome to Whiteboard Wednesday, and today we're going to talk about 5 easy ways to sharpen your trading skills.

Number 1: Keep things simple. Making money in the financial markets is hard enough without adding unnecessary complications, the number of times in the past where I've seen charts with all sorts of indicators, moving averages and levels is amazing. When you're looking at charts (and charting is a key example of this), technical analysis is the number 1 way people over-complicate their trading. In technical analysis, look at basic support/resistance levels, daily highs and daily lows; they are key for major levels, reversal points which is where the markets turn around. Technical analysis is a very complicated subject, and over-complicating it is easily done.

Number 2: Stick to your trading plan. Before you start trading or even open a trading account, have a trading plan in your mind. Everyone who starts trading has an idea of what they want to trade, why they want to trade it and where they're going with those trades. Don't change your mind halfway through a trade, bear in mind that we're in the lap of the gods. The one thing we all have in common, is that we have no idea where the market's going to go. What we can do, is put various different points in our trading plan; we can think ahead and use stop losses, limit orders and risk management tools, which will keep us on a level playing field, meaning that if things do go wrong we'll be safeguarded from heavy losses. Now, the key thing is not to get emotional about your trades, don't change your strategy halfway through a position. Don't move your stops or limits because you think you can take more money, stick to your trading plan.

Number 3: The trend is your friend. It's an old adage that means that if something's been rising for a long time, the likelihood is that it'll continue to rise, and vice versa. What the key trend is, and what people like to do when the markets are rallying strongly, is 'pick' the top or vice versa. Let's take the DOW Jones, for example, ever since November 9th, we've seen it rallying strongly on the back of the US election, when Trump won, we saw really strong movements to the upside, and as we got to 20,000 and continued to rally, there were lots of traders trying to pick the top of the market. Yes, what goes up must come down and vice versa, but the likelihood of that trend in US equities turning around purely because you placed your trade at that time are very slim. The old adage, 'the trend is your friend apart from the bend at the end' rings especially true here, and that bend at the end helps you with your stops and limits; you've put those in place and that'll protect you from the other side. If the markets continue to rise or fall, the likelihood is that they'll continue, so try not to pick those tops and bottoms. 

Number 4: Demo accounts. Don't use your demo account as an area to try and learn a new trading strategy, instead, use your account to learn how to use the software. Trading is hard enough without making mistakes on your platform due to insufficient knowledge, so use your demo account to learn the ins and outs of that platform's GUI. Then, when you come to live trading, you won't make mistakes based on your knowledge of the software. Learn how to use it, but don't use your demo account to change your trading strategy; when you trade with real money, you think completely differently when you come to place your trades. Trading strategies used on both live and demo accounts differ entirely, so try and use the demo account to learn the software. It's hard learning to trade, so don't make mistakes when using the software. 

Number 5: Don't be greedy. This comes back to your trading strategy; if the market's moving to the upside, use your stops and limits. If the market's approaching your limit order, the key mistake people make is moving that limit order in an effort to take more profit; keep it in place and take the profit when it comes. The same applies to your stop-losses on the downside; you're putting risk management tools like stop losses and limit orders into the market for a reason, so put them in and leave them there, and try not to play around with them.