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The Fundamentals of Successful Trading

Trading, or speculating on the markets, is the best business in existence if you treat it like a business, not gambling or as a hobby.

And to make a success of trading requires that you apply the same diligence you would apply to building any other kind of business, such as proper preparation. This includes investing in your education as well as planning.

Many fail to make a success of trading because they take unnecesary chances, such as trading from 'insider information', 'tips', or guessing. Trading this way nearly always results in the trader having to grapple with hope and fear.

A fundamental truth about the markets is that they will either be trending in one direction or another, or moving sideways. A market can move sideways for long periods of time, sometimes for weeks, months and even years. However, when a market breaks out of a sideways pattern that had persisted for a long period of time, this usually results in prices continuing for a good length of time in the direction of the breakout in what is known as a trend.

A market that is making higher swing bottoms and higher swing tops is a market that is bullish. One should look only to buy when the market is making higher bottoms and higher tops, no matter how high it has traveled. You should never look to sell a market because many consider it 'too high'. The market is never 'too high', and more often than not will continue to move higher.

A market that is making lower swing tops and bottoms is a market that is bearish. One should look to sell when the market is making lower tops and bottoms. The market is never 'too low', and you should not buy just because many consider the market is too low. More often than not, it will continue to move lower.

In order to discover the trend, you need to learn to read charts. You can draw them yourself on graph paper, or you can take advantage of the many charting programs available today for the computer. If you use computer charts, you can then apply various indicators on your charts that come with most charting programs.

Using charts, you can look at the different time frames and note the major tops and bottoms of prior years, months and weeks. This can help you see where the market is currently trading, and whether the market is currently trending up, down or sideways.

The probability of success in trading is highest when you focus on trading with the main trend. If you use price charts before taking a trade, you can see if price is making higher or lower tops and bottoms. It is important that you remove guessing from your trading.

 


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Another fundamental rule for trading is that you should always look to protect your capital. Getting into the habit of using stop-loss orders will help you keep your losses low while allowing you to cover them and more on your winning trades. As long as you limit your losses, you will be able to trade again because you will still having capital left to do so. Never allow a loss to go unattended, or to grow because of hope or fear. Before you place your trade, decide then where you will place your stop-loss and never remove it except to adjust it towards profit only.

There are several other things you can do to make a success of your trading. These are but a few of the fundamentals that all traders need to learn and understand.

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