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By Toni Hansen and Brandon Fredrickson
4. Focus on 1-3 Techniques that Work Well
Another trait of great traders is
that they usually focus on just a few techniques, usually 1 to 3.
The reason for this is simple: The
jack of all trades, master of none is usually a low paid unskilled worker.
Put another way, examine college students. What kind of people major in
general studies? Unless they go on to focus on a specific occupation in
graduate school or law school, etc., well-paying jobs will be hard to find
for most upon graduation. Instead, for those who focus their studies
in one field, and more specially, one subdivision of that field, demand
for their skills will be much higher. If you focus on just a few techniques,
it allows you to really become an expert on the technique you are using.
Great traders have one to three things that work and they use them over
and over and over and over again for as long as they are profitable.
5. Being a Great Money Manager
Great traders are also great risk
managers. They respect the risks they are taking and on each trade they
risk a small amount of capital. Usually this is 1/4% to 1% per position
(and no more than 2%). The idea is that you can't trade tomorrow if you
blow out today and if you can't trade you won't be a great trader now will
you? Great traders protect their accounts. It's their baby. Each position
is so small they don't really give a damn what happens with it. It's just
a nick... win, lose, or draw. So, if they have a 200K account and are risking
1/4% on each trade, that means if they take a stop they are out $500. That's
a very small amount of money compared to the account. It doesn't matter
too much if they take a stop. One or even a series of stops won't
be the end of their career.
Now, not all traders have this large
of an account, but the basic principal is the same no matter what size
of account you have. Mathematically speaking, 2% is the most you can risk
and still be able to survive the strings of stops that can and often will
occur on occasion. So if you have a 25K account and you risk 2%,
you can also risk $500 a trade. Once your account is larger, however, it
is advisable to risk less and with experience, you can also learn which
types of situations can allow for greater risk compared to others.
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