Here are the 5 most important things you should know about market approach:
1. There is no single path to making money in the markets
There is no one only strategy for succeeding in the markets. The paths that today’s successful traders take to achieve their exceptional performance varies widely. Some have studied at the world’s best universities and some are college dropouts. Their strategies range from fundamental to technical to a combination of both. Their average holding periods range from minutes to months. Their trading success is not about their background or finding the single right approach to trading. It is about finding the right approach for them.
2. You need to find your own trading approach
You can have access to the best trading system in the world. But if that system is inconsistent with your beliefs and comfort zone, it won’t bring you success. Some traders find a single method that works for them and they stick with it for a lifetime but others continually evolve. No one can tell you what the best approach for you is. You must develop a methodology that works for you.
3. You need to know your “edge”
Unsuccessful traders invest on feeling and there is little method in their actions. They lack an “edge.” If you don’t know what your edge is, then you don’t have one. That edge can be a quantitative system or it can be one that buys and holds forever. Knowing your edge is critical to identifying what to focus on among the almost infinite number of possibilities.
4 . Risk management is critical
Risk management is critically important. It is essential to becoming a successful trader. The most critical aspect of risk management is position sizing. Always calculate how much you’re willing to lose on each bet before you start trading. You must manage risk in your individual positions but you must also manage risk in your overall portfolio.
5. Emotions are bad for successful trading
Emotions will often lead traders to do precisely the wrong thing. You must be on guard against impulsive trades. Trades motivated by fear or greed usually end badly. Don’t try to make money back in the same market you lost it in. Guard against sloppy trading after big winning streaks.