Being a successful trader goes a lot deeper than predicting price movements. Here are six key things you should have if you want to achieve consistent performance over the long term. No list is a guaranteed recipe for success, but you can make sure you have the right tools in place.

1. A trading plan

Your trading plan defines your overall trading activity. This is one of the most useful resources in your arsenal to keep your trading activity focused on your long-term goals. Since each trader has a unique take on the market, based on risk preference, trading resources, asset awareness and timing considerations, a trading plan must be personalised. Some of the most important questions to ask when developing a trading plan are:

• How do you define success as a trader?
• What motivation do you have to start trading?
• How much time can you allocate towards trading?
• Where are you at in your trading career right now?
• What amount of capital do you have to trade with?
• What is your level of market knowledge or expertise?

Once you have worked through these topics you can start to build an effective trading plan.

2. Investment capital

You can’t be a trader without some capital to invest. It needn’t be a huge amount though, since most spread betting providers will let you make trades from as little as £1 per point. However, the amount you have to invest needs to be money you’re fully prepared to lose: trading is inherently risky, and it is that very risk factor that allows for big gains.

3. A risk management strategy

Simply put, risk management is the way you cope with the associated risks of trading. Highly volatile assets (those that show tremendous fluctuations in price) may give you the potential for high returns but they also carry a greater risk. Your appetite for risk determines to a large degree the markets you should target. Volatile currencies are inherently risky, as are commodities which fluctuate wildly about the mean and fast-moving equities such as biotech and hi-tech stocks.

This doesn’t mean you should avoid these instruments altogether, but you should calculate the level of risk you are happy to accept and employ risk management tools such as price alerts and Stop Losses. Remember that, with a stop, you can still lose more than your risk level if the market gaps or moves suddenly.

4. Charting tools

Whether you follow technical analysis or not, you need a way to view the price history of individual markets. A good charting tool will help you to see price movements over different timeframes, spot trends and plot the impact of specific historic events. For more in-depth chart analysis, you can apply a range of technical indicators such as moving averages, standard deviation or Bollinger bands. With an advanced charting package you can even test specific trading strategies against historic prices to see how they would have performed.

5. A real-time news feed

Timing is everything in trading. The early bird catches the worm in life and in trading, and by being alerted to breaking news as it happens you can target new opportunities or avoid losses. It’s imperative to have an accurate real-time news feed, either to your desktop, via mobile app or embedded in your trading platform. Remember to act swiftly on important economic indicators.

6. Realistic expectations

Trading is comprised of winning and losing trades. Your goal is not to avoid losses altogether but to make sure your losses don’t wipe you out. Not every investment decision you make will turn out in your favour – regardless of how much homework you have done. Markets are unpredictable and outcomes are sometimes contrary to logical expectations. By using a diversified portfolio, keeping to your trading plan and protecting your downside risk, you can mitigate individual losses and gradually increase your marginal gains over the long term.

Brett Chatz
Intertrader

Published: 6 January 2016

You should under no circumstances consider the information and comments provided as an offer or solicitation to invest. This is not investment advice. The information provided is believed to be accurate at the date the information is produced.