Record keeping

Keep good records. This is how you can figure out which markets and strategies are poor or did not deliver the returns you predicted. You can then cast out that strategy or the assumptions behind it. If your return is falling then go on to explore why that may be the case. Markets and its participants change, you need some measure of being able to keep an eye on that change and good record keeping is it. Make sure you allocate time to do it. Sometimes taking a day out will do you good and allow you a fresh set of eyes for the next day. Regardless of what setup you use to enter or exit a trade, record keeping has to be a key priority. As your trade record grows, your metrics for success will be clearly defined. Again another edge. I can tell that I have an edge in the market and because I can clearly define it I know if moves I make to improve it are working or failing. Without good record keeping you don't stand a chance.

Money management.

Money management is critical. It key to ensuring you are taking the right level of risk in a market. Money management will define how much money you put into each trade. It will also tell you when to cut your losses. Each market and strategy has its own risk/reward structure and volatility. It is for you to find a process that works inside this structure. If you know what your total downside is then your profit target is automatically defined. If you are unable to find a system that will deliver this potential target then you are doomed from the start. Try to construct your money management around how often it will fail rather than by how successful it is. This will focus your mind.

If you have to close a position 90% of the time losing you £100 each time you can work out quite easily what upside you need per winning trade. If I assume my average stop loss loses me £100 per trade then I know that in 100 trades it will be fired 90 times (90%). Therefore I need the remaining winning trades to net me profit of at least £9000 (90 losses multiplied by £100). Therefore £9000 divided by the ten successful trades means my average profit on a trade needs to be at least £900. Trading without any form of money management will ensure you end up on the rocks before you even started. Get a grasp on it extensively before you start to trade.

Making mistakes

Every body makes mistakes. Mistakes can come from over-confidence, forgetfulness, internal or external influences or just plain bizarre quirks. Try to minimise them as much as you can. Structure your trading so that any possible mistakes will be minimised.

Computers can be quirky beasts, so minimise the load on your computer system to enable your trading software to run at the best possible pace without unexpected interruptions or potential to crash. Because of the size of my trades, I run three screens and two computers at the same time to minimise any possibility of error. I have a land line and mobile phone so I can phone through an order in case of a catastrophe. When I use one click or automated software I pull the mouse away from the screen and run my email on a separate screen just incase I accidentally click something. When entering a market if I am late switching to it and the market activity is lively I don't rush in even if I think an opportunity is there I take time out to carefully asses what is happening before I get involved.

When I leave my 'trading den' I lock the door. Why? My wife once asked me to move the car and after repeating the request she finally make it clear that the car should be moved immediately!! So I dashed out to move it only to find on my return my three year old son busying backing and laying the odds on favourite for me using some automated trading software. I managed to escape a severe loss but it was still an unpleasant one. As always in these situations that horse went on to win and my loss came in, Ouch. The most expensive car move in history, maybe. But hey, lets look on the bright side. At least I have a scapegoat.

You can also make stupid mistakes when trading. Everybody makes mistakes, whether it is taking a profit, or cutting loss rather than letting it run. Don't kill yourself if you do the same. Accept it and move on. You will make mistakes and a lot of these are likely to be due to your logic and strategy being over ridden by your emotions. Make sure you learn from your mistakes and reduce your errors over time. My favourite trick is to print them out and blu-tack them to my wall, an impossible reminder to ignore.

Practice makes perfect

When you enter a market or start a new strategy, start with small stakes and practise a lot. Putting smaller stakes into the market will give you a feel for how things are going. Also you will need a large sample size. Some of my favourite strategies actually got off to a terrible start. But it was only with time and a lot of repetition that I learnt how and why things were happening and how I could refine them.

Sometimes you may just be in a bad market or a bad run. Remember that over time things WILL average out so try and avoid any immediate feelings that you have failed (or succeeded) and make sure you have enough data to hand to make a decent judgement. The opposite can happen too and you can find yourself doing fantastically well, too well in my opinion. This tends to lead to over confidence and you raising your stakes too quickly too early, only to face the inevitable set back. This can be crushing, especially when you have been doing so well and may have just raised the bar in terms of risk. Sometimes losing can actually be good!

AND FINALLY

And finally, if I had to name the top three things it takes to be a successful trader it would have to be discipline, discipline and not forgetting of course discipline. Adhere to some basic principles and there is no reason why, with a decent strategy, you should not be a successful trader. I wish you the best of luck in your future trading career.