Trading For Success - Part Seven

16 May 2018 | Dwaine van Vuuren
 


ALSO READ: Long-term Macro | Short-term Macro | Share Selection & Stops | Exit Strategies | Correct Risk/Reward Ratios | Proper Position Sizing

STEP-8:  Summary and key take-aways

Let us summarize all the key points from the last 6 articles in this series. There is a checklist of at least 7 items you must tick off before embarking on a trade, to maximize your odds of success.

Selection of which shares to trade is only one of these and is therefore an insignificant part of whether you will be successful or not. However, people spend a disproportionate amount of time on this one aspect alone.

Unless you think of your trading regime in terms of probabilities, you are likely to fail. So expect at least half your trades to blow up (be unsuccessful). With a good broker or good analytics, you could lower this to 40%

Stops are crucial, not only as they will limit your losses, but also as they are a key part of selecting trades with at least 2-to-1 reward/risk ratios and defining your position sizing (exposure)

Defining the levels where you will exit with profits are crucial as they are also a key determinant in selecting trades with at least 2-to-1 reward/risk ratios.

Don’t pick arbitrary stops and exits. Select areas most likely to act as support/resistance such as prior lows/highs or touchpoints on trendlines.

Don’t make stops "too tight" - otherwise the trade won’t have room to "gallop"

Consider "staging" your exits at likely resistance points on the way to your final exit target to lock in trade profits and lower the odds of a negative outcome.

Position-size correctly to ensure you don’t lose more than 2-4% of your trading capital on any single trade idea.

With leveraged trading such as CFD’s, stick to the exposure guidelines even though your required margin is far less than this amount. Leverage is not the killer - over-exposure is!

Identifying trading opportunities can be time consuming to find appropriate setups that provide correct stops, profit targets and reward/risk ratios. A proper trader will spend a few hours on this per day. Sharenet Analytics clients can have these presented with the click of one button. Try our 50% discounted DISCOVER subscription for new users by emailing sales@sharenet.co.za

The charges of your broker can heavily impact how much you can expose in the market as they are a key input into your position sizing calculation. With SharenetCFDs and Sharenet Securities, your brokerage is from only 0.3%.

ALSO READ: Long-term Macro | Short-term Macro | Share Selection & Stops | Exit Strategies | Correct Risk/Reward Ratios | Proper Position Sizing

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Dwaine
Dwaine van Vuuren
Retail-side Research
RecessionAlert, Sharenet Analytics

Dwaine van Vuuren is a full-time trader, global investor and stock-market researcher. His passion for numbers and keen research & analytic ability has helped grow RecessionALERT.com (US based) and PowerStocks Research (now Sharenet Analytics) into companies used by hundreds of hedge funds, brokerage firms, financial advisers and private investors around the world. An enthusiastic educator, he will have you trading and investing with confidence & discipline.


Disclaimer:
The information contained in this article is for informational purposes only and must not be regarded as a prospectus for any security, financial product or transaction. It is neither to be construed as financial advice nor to be regarded as a definitive analysis of any financial issue. Investors should consider this research/article as only a single factor in making their investment decision. We recommend you consult a financial planner/advisor to take into account your particular investment objectives, financial situation and individual needs. The views and opinions (where expressed) in this article are those of the author and do not necessarily reflect the official policy or position of Sharenet.