Monday, 24 November 2008

Hi Trader,

Welcome to the Learn To Trade Markets Mini Course - Day #3.

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What is the Golden Rule Of Trading?

The golden rule of trading is:

To succeed as a trader, you must have a trading methodology that allows you to accurately analyze market behaviour and generate timely market signals.

Your system will typically need a series of rules or set-ups that cause you to act and place trades. Your approach does not have to be complex but no matter how complex or simple you want it to be, it must be there. Failure to have an approach means your trading becomes random and haphazard, more like gambling and is therefore high risk.

Poor traders get into trouble because they place trades without any defined market analysis or signal generation. If you have no real reason behind why you trade, you can never improve.

An effective trader is a consistent trader and to achieve this you must employ a consistent plan. Following a plan requires “discipline stamina” so that you stick to your plan no matter what happens in the market mid-trade.

Market analysis is not about knowing more than the other person, so stop trying to read anything and everything out there believing it will give you some edge. It is not about finding some wonder indicator which will pave your street with gold. Good analysis is about understanding the market when you trade. To do this you must focus on the realities of the market not the speculative aspects of your “hope”.

The majority of successful traders do not depend on analysts for their advice. These individuals have become their own experts by only following their own judgement. You should never follow another persons advice to trade. All your trades should be based on your own findings.

My approach, teaches methods which will help you to become an independent trader, and you will become independent of needing any advice - thereby increasing your probability of success.

Entry, Exit and Stops

Most traders believe that entering the market is acutely important and seek more and more advanced methods to time their entry to perfection. However successful traders know that it is far more important to exit in a timely manner than the entry.

Most good traders have a method for entry (either simple or complex) so that they are taking trades for a reason rather than just because they “feel like it”.

However most traders do not spend sufficient time on planning where they will exit. When they place a winning trade, they lack inspiration about where to get out and often allow winning trades to slip into losing trades. Even worse when they enter a losing trade they are dumfounded at the prospect of a loss and allow the position to become an even bigger loss.

If you do not understand how to get out of a losing trade, place a stop and hold a winning position you will never be a success as a trader.

After working with hundreds of traders over the years, most traders lose because their winners are small compared to their losers. Closing trades too early and extenuating losses is a sure way to reduce your trading equity.

Successful trading therefore, comes from having a method for entry, a method for exit and a method to lock in profits with a stop once you have made a suitable gain, whilst still allowing the trade to grow.

Stops are by far the most important exit method that traders should employ. Despite their importance, most traders do not use stops and do not know where to place them. Worse still some traders place stops based on how much of their trading capital they are prepared to lose. When placing your stop follow this simple rule:

All stops should be market generated and based solely on the market price.

This means you should look at a price chart and pick a price for your stop where the market is unlikely to go based on its current level.

Further: if the nearest logical price at which to place a stop, means that you would have to risk a higher percentage of your trading funds than your rules allow, you must not even open the trade…

….Trader, this is a discipline which sets apart winning traders from losers.

In Part Three of the full version of Learn To Trade Markets, I teach you exactly how to correctly analyze a market to identify whether it is in a trend or a trading range. I then teach you methods for successfully trading both trends and ranges including how to generate your very own entry signals, exits and stop placements so you become your own trading guru. You will then begin to take control of your trading destiny and move towards the trading success so elusive to so many.

Tomorrow I will be talking about the single most important consideration when placing a trade…

Trader, until tomorrow…

Sincerely Karl Richards www.Learn-Market-Trading.com

P.S. To order Learn To Trade Markets now, visit: http://www.learn-market-trading.com/learn/trade-.p hp AOL Users