What Is the Best Form of Trading?

By J. S. Ryan

Day trading has taken the market by storm, but the fact still remains that very few people are actually successful at it which leaves a lot of traders wondering what they are doing wrong. With the variety of strategies available now, it's very difficult to stick to one thing and not search for something better when you have a losing streak.

This article aims to improve your knowledge and guide you in the right direction on knowing what to do and what not to do.

1. Don't listen to the media. This is not a dig at the financial journalists but they are very off putting when it comes to trading, as one day they are screaming a bull market and the next day they are screaming a bear market. So although they can talk a good spiel, half of the recommendations they share end up doing no better than your own. If you've put a trade on and you hear conflicting information from someone in a newspaper, magazine or TV, don't change your mind because of them, as thousands of other traders will have the exact same opinion as you.

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2. Set yourself targets. When entering a trade, if you haven't got a clear defined strategy before you've placed a trade, you've already started off on the wrong foot. What you need to know beforehand is what you are willing to risk on the trade and what you are looking to make in regards to profit on the trade, and make sure your profit is larger than what you want to risk.

Stop losses should always be used and place in valid price level, mainly below or above support and resistance levels, depending if you are going long and short. Lets say you the S&P 500 is currently at 2005, support is at 2000 and you think it will go to 2050, you can't be placing your stop loss exactly at 2000 as you have a high chance of it getting stopped out. So make sure you put it wide enough to stop this from happening, so maybe between 1996-1994..

3. Don't chase your losses. If you've had a bad run, don't start increasing your position size to make it back as you could end up blowing up your whole account. It might even be wiser to decrease your position size until you start to feel comfortable again. Also sometimes its better to not trade if the conditions aren't right, and trading for the sake of it is never a good idea.

4. Be prepared for market swings. You are never going to guess the market right every time, so you will need to be prepared for big swings which can seriously hurt your positions. So instead of trying to react after the market has moved, wait it out and once it's calmed down, see what adjustments need to be made.

5. Consider using advice from a professional. Let's face it, it's a very time consuming job and professionals have a much better understanding of how the markets move and why. What a lot of people do is use advice alongside doing it themselves, so when they start to get very good at it, they can then look at cutting the advisory broker away from the equation.

Even if you do all of these steps correctly, it will never guarantee you success, but at least you will be moving in the right direction to building your trading account for the long term.

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