Understanding How to Trade

Describing a trader’s journey is very similar to climbing up a large set of stairs; it takes time to get from the bottom to the top. A great deal of time and energy must be poured into learning how to trade. Often traders try to rush the process and as a result usually end up hurting their accounts.

It is imperative to follow some set of rules in order to keep your emotions in check. A “trader checklist” will help you sort through noise and find only the highest probability trades. It is common to see traders “go on tilt” as they get frustrated or lazy after a string of bad trades. Traders that let their emotions take control of their decision making settle on trading anything they can find, instead of mining through the market searching for only the highest probability trades. Often inexperienced traders find one variable they like and enter into a trade. They soon find out that their rate of success when doing so is extremely low. By forcing a stock to meet a larger set of criteria, the probability of a successful trade greatly increases.

Moreover, it is crucial to have all the professional tools in front of you, just like a doctor having all his surgical tools in front of him when operating. It is common to see novice traders aggressively buy and sell stocks without having a complete trading platform or an understanding of what exactly is in front of them. Sure, there are cases when a trader can make a successful trade while not utilizing all the information available. However, probability is against you. Therefore, the longer you participate in such an action, the likelihood of losses increases.

It is important to use any vital information that is readily available. Some of these include a Level 2 or ECN window, a tape, a limit open book (especially when trading NYSE), charts, and the overall market (SPY/S&P futures) or the sector ETF the stock most highly correlates with, as well as other stocks that are in the same sector that are known to trade similar with it.

Disciplined trading

The Equity Scholar Team