Financial market transactions are plagued by a number of myths, because there is no single unique formula that ensures of profitability.

The stock market can be compared to an ocean and the trader is a sort of surfer. Surfing requires talent, balance, patience, proper equipment and an awareness of one’s environment. Would you go into a shark-infested ocean?

The attitude you need to trade the forex or stock markets is no different from the attitude you need to surf. With a good analysis method and the effective implementation of your strategy, your success rate should improve.

The trading skill set is a combination of talent and hard work.

Here are four tips to help you succeed as a trader and aid you in building a trading strategy.

The trading approach

Before you start trading, you need to be aware that good preparation is essential. First, you need to align your goals with your personality and the trading instruments that are suitable for your style of trading. Here are three things to consider:

Your investment horizon
The time unit you prefer shows the type of trading that suits your personality. If you are more comfortable with a position that does not last long, you will prefer short-term charts and trades that are not at risk over a period of several days. If you are able to remain in position for several days, possibly watching your trade lose for some time, you will opt for daily charts.

You also need to know if you are willing to stay in front of a screen for long hours or if you prefer to do your research once a week and then make a trading decision for the following days. Remember, the ability to make money in the markets requires time. In the short term, a scalper takes small profits or losses, he must therefore spend much of his time in front of the trading platform, and his stress level is also higher.

Trading strategy
After you’ve chosen an investment horizon, you need to find a trading technique that suits your personality and your skills. For example, some investors like to buy at support and sell at resistance. Others prefer to buy or sell at breakouts or they use technical indicators such as moving averages.

Next, you need to backtest your trading method to see if it works on historical market data. If you have a system that wins over 50% of your trades, it would be to your advantage to use a risk/return ratio that is greater than 1:1. Although past performance is no guarantee of future performance, if your test indicates that your profits are greater than your losses, your strategy is likely to be effective.

The markets and the use of financial trading instruments
Some trading instruments are more orderly and predictable than others, it is therefore difficult to produce a winner with erratic trading instruments. It is therefore essential that you test your strategy in several markets to determine if your strategy is adapted to the instrument you want to trade.

For example, if you have tested the EUR/USD currency pair, you have probably noticed that trend following strategies are effective in forex, but not necessarily for indices as the latter retrace price movements much more due to a lack of liquidity. You also need to test several timeframes in order to find the ones that fit your trading strategy.

The trading attitude

An effective trading attitude features the following qualities:

Patience
A good trader has the patience to wait for the price levels that his trading system is targeting. If your trading system tells you which price you need to enter at, but the market does not reach it, you must wait for the next signal. Impatient traders lose money because they enter into positions that go against their trading plan.

Discipline
Discipline allows you to follow your plan and to have the ability to wait until the trading system triggers an action. When price action does not reach your anticipated order entry point, it is important that you have the discipline to not trade and that you believe in your system.

Objectivity
Being objective prevents one from being emotionally attached to a trade. If your trading strategy provides signals that have a high probability of success, you do not need to become emotional or be influenced by the opinions of experts who see other signals. Your system needs to be reliable enough for you can have confidence in it.

Realistic expectations
Even if luck sometimes allow you to earn lots of money in a short time, you need to be realistic, you can’t earn $1,000 on each trade with a $500 account. The primary objective is to not lose money! The profit objective must be realistic and calculated in relation to a large number of trades.

Discrimination

Trading instruments are traded differently depending on the main market players and why they invest with these instruments. The motives of hedge fund managers are different from those of mutual fund managers. Banks who speculate on the forex spot market usually do not have the same objectives as individual traders. It is important to determine what motivates the big players and to understand their strategies.

Choose a few currency pairs, stocks or commodities to test your trading method on each instrument and with different timeframes to determine which instruments work best with your system. This way, you will discover your trading system’s “personality”. Test your strategy regularly in different markets in order to adapt it to changing market conditions.

Money management (managing risk)

There is no 100% sure-fire system. Even with a profitable system that wins 70% of all trades, 30% of the trades will still be losing ones. Therefore, the art of profitability lies in the management and the execution of each trade.

Ultimately, success is not possible without rigorous risk control. It is key that you accept to take losses quickly. It often takes several attempts for you to get a trade in the direction of the trend. This practice requires patience and discipline. When your trade takes off in the right direction, you must also have the ability to take a maximum of profits and not cut your trade off too early. This approach to trading is easy to understand, but in reality it is very hard to do.

To win, you must above all accept the frequent and inevitable losses you will encounter.