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Trading Basics

Things you should have clear mind about while Trading to ensure long term survival

Time Frame

'Trading time frame” refers to the length of time that you generally plan to hold trades. Will you trade intraday, short-term, long-term or somewhere in between? What is your definition of short-term, long-term, etc.? This is a critical decision as each individual has a different temperament for risk. It is essential to trade in a manner that fits your own personality. Day traders will tell you that day trading is the best way to trade and will give you very good reasons why they believe this is so. Trend-followers will tell you that trendfollowing is the only way to go, and so on and so forth. The bottom line is simply this: No matter what anyone tells you, there is no one best way to trade. You must identify the approach that is best suited for you personally. If you can’t follow the markets all day, then it is unrealistic to expect to be a successful day trader.


Go With The Trend

One of the most useful skills that any trader can develop is the ability to identify a trend. If you can identify a market in an uptrend and enter a long position or identify a market in a downtrend and enter a short position, you have the potential to make good profits. Too many traders spend all of their time trying to “predict” what will happen next, rather than simply focusing on answering the question “what is the trend right now?

Cut Your Losses

Effectiveness with which you cut your losses on trades gone bad will probably have more effect on your success or failure as a trader than any other single factor. Just as farmer removes weeds to let the crop have the resources, protect your capital from big losses to be able to support good trades.


Let Your Profits Run

If you are holding a winning trade and you take a profit you are no longer letting your profits run. Conversely, if you are holding a big winning trade and you let it ride, then you run the risk of letting a big winner get away. So what is the right thing to do? Always keep exit rules for your winning trades to avoid this conflict.


Control Risk

If you were going to engage in some highly risky activity like futures trading you should spend a fair amount of time planning out how to avoid the associated pitfalls. Make no mistake about the vicious nature of futures markets. Rewards are big so are Risks. Risk control in futures trading is never optional. Always use stop losses, diversify among different markets, trade different time frames & methods. Risk control is what keeps you in the game long enough to have a chance to win.