Every trader has their journey and will inevitably make their own mistakes, but this article and my new E-book 7 traits of successful financial traders, which you can download at the bottom of this article, aims to help you “stand on the shoulders of successful traders” and avoid as many mistakes as possible.
As with many industries, financial markets are full of rumours, false information, and myths. In this article, I would like to cut through these and give you some valuable information based on the experience gathered by successful traders and facts. I believe these will help you make better trading decisions when trading with deriv.com.
So let’s see what the 7 traits of successful financial traders are.
1. They cut their losses and let winning trades run
Trading comes down to psychology: everyone wants to win, and no one likes to be wrong or classed as a loser. Most unsuccessful traders take profits quickly, yet they will let losing trades run and run, hoping that things will get better. When I was a broker, I would see this all the time. Clients wanted to get out of winning trades and found it easy to close these out, but getting them to close losing trades was nearly impossible.
It’s a bad idea to remain in a losing trade, where you might sink deeper and deeper. Look at Table 1 to see why it’s particularly difficult to get back from a loss.
2. They plan their exit strategy
Everyone focuses on when to open a trade, but little attention is paid to closing it. Exiting a trade, in my view, is even more critical and challenging than deciding to enter it. Your exit rule to take a profit or loss should be predefined, not some afterthought you’re likely to make on emotions. Once you get into a trade, your psychological response changes. You will have a “bias” and an emotional attachment that can cloud your judgement. In the Ebook I explain the tools available on the Deriv.com site and within Deriv Metatrader 5 to help you exit a trade and make better choices.
3. They diversify
Successful traders don’t take a directional view. They know that thanks to the power of digital options and Contracts for Difference (CFDs), it’s possible to make money from markets going up, down, and even sideways (range) trading using deriv.com.
Over the years, I have met traders that are very fixed in their ways. They only trade one market and usually have a bias only to go long. Some traders have an end-of-the-world attitude and are always looking to go short and seek out bad news. A competent trader is flexible. Much like a tree: you need firm roots, but the branches should be pliable. And yes, some small branches breaking off (taking small losses) is inevitable, but it doesn’t kill the tree.
Deriv offers hundreds of tradable markets, ranging from stock Indices like the Dow Jones, commodities like Silver and cryptocurrencies including Bitcoin and Ethereum which can all be traded to move higher or lower.
4. They let trends be their friends
Experienced traders recognise the significance of trends. Recently, I analysed my trades regardless of the market to see where most of my profits came from. The answer was: from “trend following”. A trend can last for weeks, months, and even years. Whilst you can make money trading in and out, the big gains will come from riding a trend.
Trends can be up or down, but overall you will make more from an upwards trend, as a market can go up by an unlimited amount, whereas the most a market can go down is 100%.
Winning traders trade according to what they see, not what they think. If the price goes to 60, 61, 65, 70, it is going up. It doesn’t matter what the indicator or news says or what you think should be happening - the price tells you the truth and should always be heeded.
5. They are masters of their emotions
“Vince, I was making money on my demo account, but now that I am trading with real money, I keep losing. Has the broker rigged my account?”
The above is from an actual email I received, and I have had many similar ones over the years. No, the broker has not rigged your account, you have!
When trading with virtual money, you’re probably far more relaxed and less emotional than when you are trading with real money. Many new traders overtrade, use too much leverage, and then panic.
Leverage magnifies gains but also losses
Leverage is not a bad thing to have, and Deriv offers leverage on all of its markets, but you need to treat it with care. Many new traders go to the maximum leverage limit they can have. However, it would be wiser to use less leverage — you don’t have to drive at the maximum speed limit!
Many also start doubting their trading systems after a few losses and start changing the rules. Of course, we all want to improve systems, but if you keep changing your system, you will never know if it works. Markets don’t work as efficiently as we would like them to. You could easily have 5 or 6 losing trades in a row, and of course, you will then be
worried about taking the 7th trade, but that could be a profitable trade and the start of a new trend. Skipping the trend could be a big mistake.
On the subject of leverage Deriv over an excellent financial product called a “multiplier” which allows you to use leverage, however your risk is capped at your stake. You can read more here: https://deriv.com/trade-types/multiplier/
6. They KISS (Keep It Simple Stupid)
Many new traders think they need lots of fancy software, 8 trading screens, and a super-fast internet connection to succeed in trading, but the truth is: although these tools might be helpful, they’ll not make you a good trader.
Keep everything as simple as possible. I have seen many traders making money and doing well with simple trading systems such as moving average crossovers. Then they decide to make it more complicated and add more rules and indicators. Yes, you guessed it; they start losing money.
Nothing wrong with testing a new system and Deriv allows you to do this with a free virtual account but don’t throw out a winning system just because you have become bored with it.
As for expensive software, Deriv gives you access to a great trading platform, and you can also access MetaTrader 5 (MT5) at no extra charge.
You can look at third-party trading systems and plugins that may help you, especially if you’re new. But keep it simple. You don’t need to spend thousands of dollars on software.
7. They know what they can control
However smart we think we are in trading and investing, we are dealing with unknowns. What we know and what we can control should decide how much we risk on each trade. And determining these factors is what you should be spending more time on.
Many traders spend too much time worrying about factors they cannot control, and financial markets have plenty of those. However, you can certainly control some factors and will outline those in full in my complete e-book. However, here is one factor to consider right now:
However sure you are that the market will crash or XYZ is going to soar, make your first trade a small one. Then, if you are correct, add more to that trade. Pyramiding a successful trade is the key to making large returns.
Never add to a losing trade! I have seen traders “average down” or use a martingale system, and I can honestly say that over the long run, both are a recipe for disaster.
If you start with say $2,000 in an account and risk 5% per trade (i.e. $100), you control your risk. If your balance goes down to $1,800, you now risk 5% ($90). If the balance goes up to $2,500, you risk $125.
You can work on building your money management plan or adopt it from this guide or another source, but it’s essential to have one.
The cases over which I see traders get into serious trouble, are those that I call “Hail Mary” trades. In these situations, traders risk all or a large amount of their account balance on one trade that they pray will make money and get them out of a hole.
To learn more about money management and other must-knows of successful traders, download the full e-book 7 traits of successful financial traders, written exclusively for Deriv by Vince Stanzione, here.
CFDs offered by Deriv Investments (Europe) Ltd are considered complex derivatives and may not be suitable for retail clients. They may be affected by changes in currency exchange rates; If you invest in this product you may lose some or all of the money you invest; The value of your investment may go down as well as up.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 63% of retail investor accounts lose money when trading CFDs with Deriv Investments (Europe) ltd. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Digital options are not available for clients residing in the European Union or in the United Kingdom.
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This information is for educational purposes only and it is not intended as financial or investment advice. The company will not accept any liability in this respect.
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