In this first blogpost on trading, I’m going for an in-depth look of what being a trader is all about. What does it mean to be trading? I will go deeper then ‘buy low, sell high’ or ‘make profits in the markets.’
As an exercise in February, I challenged myself to write down a job description of what the hell I’m doing. I know, I could have searched for one online, but I wanted my own, personal view on what I think makes someone a trader. After I give you the definition I came up with I will break it down piece by piece, giving you a full view of what it means to be trading.
“It is my job to let moments of high probability in making a profit in the markets come to me by research and alerts, followed by acting on these specific high probability trading setups using targets and a stop-loss dictated by technical analysis.
The trading setups are formed by a combination of technical analysis indicators and price action, are backtested, logged and reviewed to have enough data to decide if a trading setup is still valid to use.
Trades are not judged on being profitable or not, but by whether or not they were executed by correctly following a trade setup and by strictly applying proper risk management.”
When trading, you have to fully accept that anything can happen. There is no certainty in the markets. Even the best analysis can be proven wrong by price going to other way. What you are searching for are moments in the markets that there is a higher probability of one thing happening over another. In most cases, you will be looking for a higher probability of the price moving upward then downward. There are many tools and theories that can help you to see these moments, and I believe different tools are suited for different people.
Making a profit
Of course we aim to make a profit, we got bills to pay and groceries to buy! What’s interesting is that you also have to manage your money in terms of what you take out to pay the bills, what you keep in your portfolio to grow it and be able to take on larger positions, etc. Because of this, the goal of making a profit out of your own money makes you more conscious on how you allocate and spend your money.
Research and alerts, acting on them, targets, stop-loss and technical analysis
When you get into trading and start searching for resources, you will inevitably be introduced to price charts with all kinds of lines on it. What happens there is called technical analysis. By applying technical analysis on price charts and putting alerts on key levels (of price or an indicator) you take out as much emotion out of the trade as humanly possible. Before taking a trade, you need to know the reasons you take this trade, where you will take your profits and (very important) where you will take your loss. By doing this you trade more and more mechanically and less emotionally, which is exactly what you need to be a succesful trader.
Trading setups, backtesting, logging, reviewing
You use a trading system or setup, which basically means a combination of indicators / candlesticks / price action that give you the signal to buy or sell an asset. You can get examples from other traders, or create a setup yourself. What’s important is to properly backtest the system, scrolling back in time and check if the system would have been profitable or not over a certain period of time. If a backtested system proofs to be profitable, you bring it into live trading, all the while logging and reviewing your trades.
Judging your trades, execution, risk management
It is very tempting to go crazy when you close a trade in high profit, yet the challenge is to stay out of this euphoria and get back to analyzing if you executed the trade correctly. Did it fully match one of my trading systems? Were my targets and stop-loss correctly placed? What could I have done better? By judging your trades on execution and risk management, you enable yourself to keep learning from your very own trades so you can become a better trader after every trade, profitable or not.
Based on this, being a trader means you will be working on different kinds of tasks:
- Charting: performing technical analysis & manage alerts.
- Trading: acting upon charts & alerts to execute and manage trades on exchanges.
- Study: learn about new indicators or trading setups.
- Test: check a new trading setup for viability by backtesting or paper trading.
- Review: either check your own trading data or by writing on your experiences.
- Talk: either for feedback, helping eachother or working together.
If this overview gets you interested, then trading may very well be a path for you to take! Other blogposts will zoom in on one of the aspects of trading, giving an in-depth look per subject. If you want to stay updated on new posts and other information, follow me on Twitter @TradingTemple
Disclaimer: everything I publish on any platform is meant for educational purposes only. NOT to be used as financial advice.
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