9 Ways To Become A Better Trader
BY Chris Andreou
|3 4, 2022The first thing you need to know is that becoming a better trader takes time. For many, it takes years of persistence and hard work. It takes years of learning about themselves as much as learning about the markets. To master the skills and mind-set and develop the powerful habits necessary to become a better trader.
However, there are some practical things you can start doing today that will set you on the path to become a better trader. In this article, I will outline 9 ways for anyone to take the next step and learn how to become a better trader.
So without any further delay, let’s get started.
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9 Ways to become a better trader
If you’re serious about becoming a better trader, you know there are many skills involved. No matter how smart, astute or sharp you may be, without the right tools and mind-set, you won’t get very far. Sometimes it can feel like there is some secret or magical information available to a select few, but that’s just not the case. If you persist towards your goal and learn from your trading mistakes, you can progress relatively quickly.
There are a lot of ways to become a better trader and no matter what level you’re at, there’s always more you can do. Reading through forums, blogs and watching videos, you’ll see hundreds of ideas and theories about price behavior. Everyone has their own opinion, but not everyone has the same experience or really knows how to trade. And that brings us to the first tip.
1. Get the right education or find a mentor
Starting out in trading can be frustrating if you have no guidance and a mentor is not that easily available to everyone. Especially one that knows what they are doing, and are able to share their knowledge with you.
Further to that, self-education is still a very effective way to improve yourself as a trader. For most people, this is the only or most obvious route. The good thing about this is that there is a lot of free trading education available, including from books, websites and videos online.
But then the dilemma is, who do you learn from or who should you follow? Quite frankly, the more sources you learn from the more confused you may get. However in the process, you may increase your chances of finding material that resonates with you and the approach you want to take.
There are as many ways to trade as there are traders; you just have to find one way that can work for you.
2. Trade fewer markets or instruments
Too many traders try to trade too many markets. They overload their trading screens with too much information, flip between charts and try to analyse every little squiggle that shows up on a chart.
The human brain can only absorb so much information at one time, and trying to keep track of more than 2 or 3 instruments can lead to mistakes. By following fewer instruments or markets, you will put more emphasis on them. In turn, allowing you to develop strategies that are more effective or suitable to that particular instrument.
Further to that, each instrument only has a few really good swing trading opportunities each week. By tracking fewer instruments, it will reduce the likelihood of over trading and you can develop a trading plan with a narrower focus.
Once you have put together your trading plan, stick to it.
3. Stick to your trading plan
One of the best ways to become a better trader and avoid making mistakes is by developing a trading plan and sticking to it. You should have an idea about what types of instruments you want to trade and the conditions under which you want to trade them.
Trading without a plan is like driving without a navigation system. If you don’t know where you are going, how can you tell when you get there? Trading is not about random guesses or tips from friends; it is about discipline and following a well-defined strategy. Before you get started, you must define your entry and exit signals clearly and have a protocol to define and manage risk.
It’s best to keep it a simple as possible, remove ambiguity and to have the discipline to stick with the plan. This will also help you from making emotional decisions or decisions based on impulse instead of strategy. The former can easily lead to costly mistakes.
4. Learn to manage your emotions
Trading is mainly a psychological game and not knowing how to deal with one’s emotions can result in disastrous outcomes. This is easier said than done, because many traders fall victim to their emotions and are not able to stick to a trading plan.
To become a better trader, you must learn to manage your emotions. The way to do that is to approach trading more methodically and be more systematic. This includes having a well-defined trading plan as already mentioned. But to think of your trading activities as a business that requires proper planning, execution, management and having review processes in place.
A great way to implement these is by keeping a trading journal. Many traders may appreciate the importance of this, but seldom do it. However, it can be very helpful if used correctly because it can help you analyse your trades.
5. Keep a trading journal and analyse your trades
If you are serious about becoming a better trader, you should be keeping track of your trades.
Keep track of your trades and analyse them after each trading session. Keeping a record of all your trades will let you know what works and what doesn’t work for you. After analysing all of your trades, you will be able to see which areas need improvement and where things usually go wrong. It may give you some insight on how to better execute your entries and exits. Or it might show that there’s nothing wrong with your entries but you exit too soon. The whole point is to learn from your mistakes and optimize your strategy.
There are many different ways to keep track of your trades. You can use a spread sheet with comments that include before and after screen shots.
6. Focus on what you can control
You can’t control what markets will do, what will happen next or the outcome of the next interest rate decision. To become a better trader, you need to focus on the things you do have control over. Such as, what instruments or markets to trade, when to enter and exit, your emotions and risk management.
You may have noticed that most, if not all of these are internal factors. That is all you can control, your interaction and reaction to the market. With enough practice and understanding of both the markets and yourself, you can become a better trader.
The art of this lies in your ability to create and follow your own trading plan, which puts the odds in your favour. Then by honouring the rules, staying disciplined, managing your emotions and the risks involved.
7. Use the right money and risk management strategy
Managing risk is essential if you want to become a better trader. It is more important than your strategy but not as important as your mind-set. Your strategy can be wrong more often than not, but if you have a good money management strategy, you can still be profitable. Risk management doesn’t just mean having a stop loss; it means having an overall strategy for managing risk in all aspects of trading.
The basic premise behind money management is that a trader should never risk more than what would be considered appropriate for their account size. You want to make money right? Well, you need to learn how to manage it correctly. This can be as simple as simple small percentage of the balance. Other factors include not trading lot sizes that are too large for the account and the volatility of the instrument. Also, considerations should be made about the correct placement of a stop loss. It should be in a place where it is highly unlikely to get triggered.
Becoming a better trader is not about being right more often, although that is better. It’s about being able to make the most of your winning trades, and cutting losers quickly. To become a better trader, you need to identify trading opportunities and put the probabilities of success in your favour.
Markets are constantly changing, so must you to become a better trader.
8. Stay informed about current economic or political events
It is for this reason that it’s very important for you to stay informed about current economic and political events. In addition to macro-economic data releases, other geopolitical events such as elections or wars can also impact the markets. Staying informed gives you the opportunity to manage risk and identify trading opportunities.
If you don’t keep up with economic and political news, it’s time to start. At a minimum, add the following items to your regular reading and viewing schedule.
The economic calendar; this is updated frequently and highlights upcoming economic events and the time they are scheduled to be released.
Our daily market analysis; this provides a snapshot of what is happening and also how this can impact the markets.
It’s essential to keep up with current events and to understand the story behind the headlines and price movements. It helps you assess the state of the economy and what is happening in the world. The more you know, the better decisions you can make and this will help you become a better trader.
9. Practice to become a better trader
When you’ve developed your strategy, one of the best ways to test it is by practicing with a demo account or by going live with small lot sizes. In either case, the idea is to reduce the likelihood of making expensive mistakes early on.
Demo accounts are completely free and will give you a feel for the market without you having to take any risk. Trading with micro lots let you experience the psychological aspect of trading, without having to risk much. The former is better than the latter if you want to progress faster. But the point is that practice will help you become a better trader.
Becoming a better trader
Trading is a challenging business that can be difficult to master. The good news is that it can be done, because people have done it.
One of the key reasons that trading is difficult is because there are so many variables involved. In this article, we broke down 9 ways to become a better trader. If you take the time to work on each of them, you will be on your way towards achieving your goal.
As with most things in life, it takes work and dedication to become a better trader. It requires constant learning, testing, refining and practice. But if you’re willing to put in the time, you will eventually see the results.
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