5 Things you can do TODAY to improve your Trading

Improvement in any endeavour is a critical part of success. There are undoubtedly a number of different things that one can do to improve their results in the markets. Here are five things I feel are critical to improving your trading and which can have an immediate impact!

1)              Understand what the Price is doing on the Chart.

In order to be successful in the markets, we first need to understand how price is responding to the various events, news, earnings, and geo-political circumstances.  The important thing to note here is that regardless of what the news may be, it will first show up in the price of the asset in question.  So the price tells us immediately what is happening in the market, there is no lag as there is with most indicators.  It is also important to understand when the price is responding fundamentally or responding technically.  We expect the markets to respond fundamentally when news and events hit the headlines.  An expectation follows that the markets will respond technically when things are quieter on the news front.

2)              How to Spot a Trending Market.

One of the safest ways to invest in the markets is to identify and follow a trend.  Trends represent the flow of money into, or out of, a particular market.  If money is flowing into a market then there are buy orders accumulating.  If money is flowing out of a market then there are sell orders accumulating in the same way.  You will be well served to invest going in the direction of that trend or that momentum.  One of the key factors in reading price action is to be able to identify higher-highs and higher-lows in an uptrend, or lower-highs and lower-lows in a downtrend.  This is your first clue to identifying a directional bias and trading with the predominant trend.

3)              Trade in the Direction of the Trend.

Once you have identified a price action trend on the charts, you have identified either buying or selling momentum in the market.  If major funds on Wall Street are selling, than you will see that activity reflected in the price action.  The key thing here is do not fight the trend, just go with the path of least resistance.  When you are trading with the trend you will find that the market will have a significant amount of momentum going with the order flow of the buyers or the sellers and this helps you to identify who is controlling the market at that point in time.

4)              Using the Higher timeframes.

When you have ascertained a directional bias in the market, and you understand through the price action who is controlling the market, the next question becomes how long will the trend continue on in its current direction?  Instead of guessing, there is a way to gain confidence that the price will continue on the same path.  If you look to the higher timeframes, such as the daily and weekly charts, you will be able to see if the trend is in a longer-term formation just by looking at the price action.  At that point you have a longer view in terms of where the market may be headed, and you will be able to position yourself going with the momentum of the higher timeframe trend.

5)              Learn how to Manage your Risk.

Risk management is the fundamental component that determines whether you will be successful in the markets or not.  If you do not find a way to manage the downside on your investments, then you do not have a way to control your losses.  One of the key principals to investing is understanding your reward: risk ratio.  In other words, if you’re going to risk $1 in the market than you should plan to make at least $1 or $2 or $3 for assuming that initial risk.  If you are constantly risking  $1 to make 50 cents, then you will need a very high win/loss ratio to be profitable.  But if you are consistently earning  $1.50 for every $1 you risk, you can be a horrible investor with a success rate of 50% but still have the potential to be profitable.

The other side to this equation is about getting your success rate up higher than 50%, then you created an edge for yourself in the market in terms of both your reward: risk and your win/loss rate.  A predefined trading strategy can help to establish this type of edge as an investor.

Of course, there are plenty other areas to focus on, but if you can get very good at these 5 areas, you’ll be heading in the right direction by creating a solid base from which to build upon.

We hope you can join us at this week's webinar where you can learn more on how to improve your  trading.

This week's webinars are:

• Top Ingredients for Successful Trading - Tuesday 25th March @ 7am London, 6pm Sydney and 8pm Auckland

                                                                           &

• Trading Strategy Precision Style - Wednesday 26th March @ 4pm New York, 8pm London, 7am Sydney (next day) and 9am Auckland (next day)