“It’s not whether you’re right or wrong that’s important, it’s how much money you make when you’re right and how much you lose when you’re wrong. George Soros
George Soros, widely regarded as the greatest trader ever, is famous for his quote and most popularly known for his massive short trade against the British pound in 1992, which brought him profits exceeding $1 billion and nearly broke the Bank of England. Since then, Soros has amassed billions of dollars in the market, making him worth over $6.7 billion. Additionally, he has donated over $32 billion to charitable causes. Hence, George Soros’s opinions are highly regarded by people.
Your goal is not to be 100% successful
George Soros discussed the realities of trading and investments, warning that market participants will inevitably lose money. Even well-known traders and investors like Soros and Warren Buffett have experienced weak performances over time. In fact, statistics show that more than 80% of traders lose money.
Soros advised traders to aim to lose less money and less frequently than they win. Ultimately, success in trading is determined by having more wins than losses in the long run. Put simply, consistency is key.
To achieve this, traders must incorporate various factors, including a well-defined trading strategy, effective risk management, and a sound psychological state.
Having a good strategy
To ensure you have a solid day trading strategy, the first step is to establish an approach for analyzing your financial assets and implementing trades. This is what is meant by a trading strategy. There are several popular strategies to choose from, including scalping, swing trading, algorithmic trading, and copy-trading.
It’s recommended that you take a few months to develop and test your trading strategy using a demo account. At WTA, we offer the Trading Mode Superb (TMS) demo account, which allows traders to practice without risking real money. With a good strategy in place, you increase your chances of making profitable trades.
In creating a strong strategy, it’s important to have a good understanding of both technical and fundamental analysis. Technical analysis involves examining chart patterns and using technical indicators like moving averages, relative strength index, and MACD to determine whether an asset is likely to continue rising or reverse.
Fundamental analysis, on the other hand, looks at the various factors that can influence an asset’s valuation. For stocks, this might include earnings and news, while for forex trading, fundamental data could include inflation, retail sales, and earnings.
Adopt risk management strategies
One must also consider implementing a sound risk management approach, which involves minimizing losses and maximizing gains. This can be achieved through various techniques, such as proper position sizing, implementing stop-loss orders, using trailing stops for all trades, and following market trends. It is essential to avoid over-trading, as this can significantly increase the risk of losing money.
Another crucial aspect is understanding the correlations within the market. For instance, purchasing shares in ExxonMobil and Chevron simultaneously could expose one to considerable risk if energy shares were to decline. Similarly, investing in similar Exchange Traded Funds (ETFs) that track the S&P 500 and Nasdaq 100 can also lead to a potential loss.
Trading psychology
Ensuring that you are in a good psychological state is another key factor in avoiding financial losses. Often, a trader’s psychology is the main reason for losing money.
For instance, some individuals may rush to open new trades immediately after losing money in an attempt to recoup their losses. Alternatively, a trader may be tempted to open more trades after achieving a series of successful trades.
Key psychological traits to consider
When day trading, it is crucial to consider several psychological traits. These traits include discipline, patience, and emotional regulation.
Discipline is key for day traders as it allows them to stick to their trading strategies and maintain consistent trading sizes. It is essential to have a stop-loss and take-profit in place to manage risk effectively.
Patience is also vital as day traders must wait for their strategies to play out. Waiting for indicators like VWAP and moving averages to signal buying or selling opportunities is necessary. Additionally, traders should avoid closing their trades too early, especially when in a loss-making position, as the market may recover shortly after.
Finally, emotional regulation is essential for day traders. Making decisions while angry or fearful can lead to substantial losses. Therefore, it is crucial to manage emotions and make decisions based on logic and strategy.