Learn To Trade- Tips and traps you need to know

By Dale Gillham

The most important priority for traders or those wanting to learn to trade is to enter or exit a trade at the highest probable time in fact the question I get asked most here at Wealth Within by those who want to learn to trade the share market is how to know when the best time to buy or sell. This means you want to buy at the time a stock indicates, with the highest probability that it will move up in a continued uptrend or sell when it indicates it will fall away in a continued downtrend. This is great in theory, but how do you put this into practice?

Let me ask you. Do you find you continually get stopped out of trades or you have a series of low profit trades followed by a big loss or a series of small losses and an occasional good profit? If this is you, then let me say you are most likely taking trades that:

1. Have a lower probability of success

2. You are most likely not trading with the trend

3. Further it may also be that your money management techniques can probably also be blamed for this.

Don’t worry, you are not alone as this type of story is common amongst traders as the majority trade through a fear of losing and so actually get more of what they fear. I call this trading to not lose rather than trading to win.

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In my experience many traders continually chase profits with little or in some cases no real understanding of what they can lose, and as a result they take higher risks than necessary in an attempt to achieve their trading goals. The end result is that their portfolio either under performs or they lose, with the majority losing over time.

The question that I am continually asked is how do I increase my probability of success? Or in other words, how can I learn to trade better?

There are many things anyone can do to increase their chances of success in trading and these include increasing or in many cases just getting the right knowledge, you could also learn how to set some solid money management rules.

A very important part of trading well, and one that is pretty much ignored, is working on your psychology, as how you approach your trading is critical to your success. Using a trading plan is also essential especially for those new to trading those wanting to learn to trade as all too often new traders ask me what they should do in x situation.

My answer always has been and always will be, what does your trading plan say to do? If you do not have a plan then in my book you are gambling.

While the areas I have just mentioned may seem to you like common sense, but let me say that I have met literally thousands of people who tell me that they are traders, but when I chat with them to find out what they know and what they do, I find that with the vast majority they have little or no concept of these areas, particularly when it comes to having a written trading plan.

The majority of people who tell me they trade use guess work to determine what and how they trade. I know this may sound harsh but it is very true. Let me ask you if you would give someone else with your knowledge and experience all your money to trade? If your answer is no, then you are in the group I just mentioned and you need to decide if your goal is to trade to win or trade you are trading to not lose.

I cannot fathom how anyone could think they would be a successful trader without a trading plan. It is sort of like someone trying to get somewhere without knowing where they are first. All the person will end up doing is to go around in circles and waste time. I am also certain that no one would invest in any of Australia’s largest companies like BHP if the CEO came out and said we don’t have a plan to trade successfully, we are just going to wing it for a while and see what happens. There is a reason why businesses have business plans and why traders should have trading plans, and that is that both want to make a consistent profit.

Education is the enemy of fear, and so I find it quite surprising that people enter into the share market with little or no knowledge and expect to be successful, yet when things do not go right they act on fear and so end up losing.  If you are trading now, ask yourself are you trading to win or are you trading to not lose? Think about it because your answer will determine how successful you are.

Dale Gillham Wealth Within

If you want to learn to trade to win, then take a look at our Diploma Of Share Trading and Investment

If you have any questions feel free to email info@wealthwithin.com.au or write your question in the comment box below and we’ll get back to you shortly.