7 Steps to become a Successful Trader

1.Introspection

The very first step should be to ask yourself why you want to trade in stock markets. Unless you have a clear answer for this, you should not move to the next step. For most of the people trading is gambling, for some it’s a means to become millionaire within a year and there are few strange occurrences where people trade to divert their minds from other issues they are facing. If your purpose of trading falls under any of these examples, then please go back and find out the real reason of entering the stock markets. Consider it as a profession rather than hobby. And never expect to multiple your income within few days.

2.Read, Learn, Repeat

Your success at trading depends on your knowledge of markets. And knowledge can only be achieved step by step. Try to learn from the very scratch, and don’t consider yourself as an expert even if you know better the others. Start with this interesting article which explains what trading actually is:

Trading for Dummies- A simple Analogy

You may either select fundamental analysis for you trading decisions or you may go for technical analysis. We generally recommend the blend of both with more focus on technical analysis and charts. Read numerous books and watch videos from experts, and never stop learning. Use the power of social media to connect with fellow traders across the world. Don’t fall prey to scam websites which boast to make you rich in a month, and beware of tipsters. Start with equities first and then venture into futures and options.

3.Assess your knowledge

It’s essential to assess your knowledge at regular intervals. Apply you knowledge in paper trading before you put money in the real market. Create a trading group and share your knowledge, involve into debates and group discussions. Start taking part in trading forums to share your ideas and learnings. Apart from these,there are several standard certifications specific to stock markets. Go for one of these, it will help you to boost your confidence. Read below article to get an overview about NCFM certification offered by national stock exchange of India.

NCFM Experience- Financial Markets: A Beginner’s module

4.Open a trading account

This is generally the first step people do while entering the stock market business. But we recommend to complete above 3 steps first and then start looking for a broker to open your trading account. Go for a discount broker instead of full-service brokers. Discount brokers offer a very low brokerage on your trades as compared to others. Brokerage is generally fixed and not a percentage of your investment value. For ex: RKSV and Zerodha are popular discount brokers in India and they charge brokerage as low as Rs. 20 per order. Paying a low brokerage would help you gain better profits from your trade.

5.Discover your trading style

Every trader has a different risk appetite, and this determines the trading style he chooses. You can be a long term trader, swing trader or intra-day trader. None of these trading styles are bad as long as it is profitable. But we would recommend never to start with intraday trading on high margins. Try your luck and knowledge in swing or positional trading first and invest only in high liquid and low volatile stocks.

6.Develop a trading strategy

Every trade you execute should be an outcome of pre-defined rules of entry and exit. These rules are called trading strategy or trading system. Never trade on gut feeling or any fundamental news. Execute a buy/sell order only if your trading system directs you to do so. Designing a trading system is a complex process and require deep analysis of various technical factors. There are many tools available in market which can help you to design a trading system and backtest its performance on past data. Examples are Amibroker, metastock, Ninja Trader etc. There are few Indian tools too which are relatively low in cost. Read about them in the below article:

Alternatives to Amibroker

Trading Tuitions has a separate section for profitable Amibroker and Excel trading systems. Find the links below:-

Excel Based Trading Systems

Amibroker Trading Systems

7.Be patient and let your money grow

This is last but one of the most important steps. Most of the traders quit in first 6 months once they lose all the capital. The only reason is that they lack patience and probably don’t follow their trading system with discipline. Patience is the key for successful trading. You cannot expect your trading system to be perfect all the time. Even the best trading system operated by hedge funds are profitable only 40% of times. But they have a good risk reward ratio.

Risk Reward Ratio: An ultimate tool for Success in Stock Market

The other important thing is to let your money grow with time. Compounding is considered as the 8th wonder of the world. Cut short your losses and let your profits to grow. Always invest a part of your returns back into your trading system.

Power of Compounding

If you consistently follow these 7 steps, no one can stop you from becoming a successful trader. You may fail in the first attempt, but then you should repeat these steps. The only thing you should remember in trading is ‘Never Give up‘