It’s known as the 80-20 rule, where 80% of the results is due to 20% of the effort.
So, what does this mean?
For a business, 20% of its clients produce 80% of its revenue.
For a software, 20% of its features cause 80% of its usage.
And for a trader, 20% of your actions produce 80% of your results.
Now… there’s so many things a trader can focus on. Entries, exits, risk management, position sizing, fundamentals etc.
But the question is…
Which are the 20% that you must focus on, to deliver the biggest results?
So, this is what you’ll be learning today…
10 trading tips you can learn in 10 minutes, that will have the biggest impact on your trading.
Are you ready?
1. Don’t scare yourself out of a trade by going into lower time frames
If you enter a trade on the daily time frame, then manage that trade on the daily time frame.
A big mistake you can do is, drilling down into a lower time frame, and scare yourself out of the trade.
Here’s what I mean…
The takeaway is this…
If you enter off the daily time frame, you set your stop loss and manage your trade on the daily time frame.
If you enter off the 1-hour time frame, you set your stop loss and manage your trade on the 1-hour time frame.
If you enter off the 15 minutes time frame, you set your stop loss and manage your trade on the 15 minutes time frame.
2. Place your stop loss at a level where your trading setup is invalidated
Don’t set your stop loss based on a dollar amount you’re willing to lose.
Set it based on the structure of the markets, where if your stop loss is triggered, you know you’re wrong.
For example, if you’re long at support, then a break of support would mean you’re wrong…
Or if you’re trading a breakout, then a close back into the range would mean you’re wrong…
If you want more examples… go watch this training video below:
3. Trading with the trend increases the probability of your trades
When the market is trending, it has an ebb and flow with two different “legs” in it.
Impulse move – Longer “leg” that trades in the direction of the trend
Corrective move – Shorter “leg” that trades against the direction of the trend
By trading with the trend, you’ll get a bigger bang for your buck as the impulse move is stronger than the corrective move. This gives you greater profitability for the same amount of risk.
Here’s what I mean:
The trend is your friend… right?
4. You need to find a trading method that suits you
If you love watching the markets and have all the time in the world, then long term trend following will not suit you. You’d micro manage your trades on the shorter time frames, and miss the longer term trend.
If you have a full-time job and cant afford to watch the markets, then intraday trading will not suit you. You’d miss trading opportunities because you do not focus on the trading session.
If you love to build systematic trading systems, then learning how to read chart patterns and price action will not suit you. You’d be frustrated because there are some things in the market that can’t be quantified.
So whats my point?
My point is… you need to find a trading approach that suits you, yourself.
Here’s how you can increase the odds of your success:
- Adopt a trading method that fits your belief about the markets (if you don’t believe in trends, then trying to be a trend follower is ridiculous)
- Find a trading time frame that suits your schedule (if you have little time to trade, stick to the higher time frames)
- Don’t hop from one trading system to the next, just because you see another trader having success with it (that’s a sure fire way to remain a consistently inconsistent trader)
5. Don’t abandon your trading strategy after a few losing trades
Because no matter how good a trading strategy is, in the short run your results are random.
And this can be explained using the law of large number…
If you take a coin and toss it 1000 times, you’d get close to 50% heads and 50% tails.
However, if you toss it 10 times only, it’s unlikely to be 50% heads and 50% tails due to the small sample size.
And its the same in trading…
You cannot conclude a trading strategy doesn’t work based on a small sample size because, in the short run, your results are random.
Instead… you need a minimum of 100 trades to find out whether your trading strategy has an edge in the markets.
6. A trading plan makes you a more disciplined trader
One of the biggest reasons why you fail as a trader is because you don’t have a trading plan.
You’re trading decisions based on your emotions, subjectivity, and opinions of the market.
Getting into trades because:
- Of an “insider tip” you heard from a friend
- You think price can’t go any lower
- You’re bored
And here’s the thing…
If you have an inconsistent set of actions, how do you expect to have a consistent set of results?
Here’s the thing:
The only way you’re going to achieve consistent trading performance is by having a consistent set of actions, and this can be achieved by following your trading plan.
If you want to learn how to develop your trading plan, read this post here.
7. Risk 1% on each trade to prevent your own destruction
You have a trading system that wins 50% of the time with 1:2 risk reward.
And you have a hypothetical outcome of L L L L W W W W
It’s a profitable system, right?
If you risk 30% of your equity, you’d blow up by the 4th trade (-30 -30 -30 -30 = -120%)
If you risk 1% of your equity, you’d have a gain of 4% (-1 -1 -1 -1 +2 +2 +2 +2 = 4%)
Having a winning system without proper risk management isn’t going to get you anywhere.
You need a winning system with proper risk management.
And not forgetting…
The recovery from the risk of ruin is not linear, it could be impossible to recover if it goes too deep.
If you lose 50% of your capital, you need to make back 100% to break even.
Yes, you read right. 100%, not 50%.
That’s why you always want to risk a fraction of your equity, especially when your winning ratio is less than 50%.
So, how much should you risk exactly?
This depends on your winning ratio, the risk to reward, and your risk tolerance. I would advise risking no more than 1% per trade.
8. You don’t need to know everything to be a profitable trader
Why do I say that?
Because I made the mistake of thinking I needed to know everything, in order to make money from trading.
And my turning point was when I realized that, less is more.
Now, I’m here to tell you this:
- You don’t need to know any fundamentals of the market you’re trading
- You don’t need to know what the big players are doing
- You don’t need to know what is pivot point
- You don’t need to know what is a Crab pattern
- You don’t need 6 monitors to trade
- You don’t need to purchase any proprietary software, tools or indicators
And you can still be a consistently profitable trader.
Now you’re probably wondering:
So, what do I need?
- A trading strategy that has an “edge”
- Proper risk management
- The right trading psychology
9. Keep a trading journal if you’re serious about trading
Do you recall the past trades you’ve taken?
Perhaps there’s a chart pattern that is showing a high probability of success.
Perhaps your trading strategy that isn’t working well in current market conditions.
Perhaps you’re not following your trading plan which is causing your performance to deteriorate.
Now, if you don’t have a trading journal…
How do you know what you’re doing wrong?
How do you know what you’re doing right?
How do you know what can you improve on?
Get my point?
So, if you’re serious about trading, you must have a trading journal. And you can learn how to create one here.
10. One “trick” to improve the returns of your trading performance
No, it’s not adding another “filter”.
No, it’s not adjusting the parameters of your indicator.
Its… knowing when to stay out of the markets.
Here’s an example:
Let’s assume a trend following strategy would make 20% in a trending market, and lose 15% in a range market.
In a given year, the market was in a trend once, and in a range once. Thus netting a return of 5% (20 – 15).
Now, what if you can identify the range market, and stop trading during that period, would your returns improve?
Instead of earning a return of 5%, you made 20% because you stopped trading when the markets weren’t favorable.
The takeaway is this…
You need to know when to stay long.
You need to know when to stay short.
And you need to know when to stay out.