Previously, we discussed a study by the University of California showed that 99% of those trading intra-day losses. Today I would like to highlight three key factors needed for profitable investments and trading.
- Your advantage on the market
You first need to find a market where you will have an advantage over other participants. For this it is necessary to define the following details:
— How will this market? In the investing and trading you play against other market participants, which may include individual investors, high-frequency algorithms, and also a large company of wall Street. In answering this question the traded asset is not so important, more important that you have technological advantages, or lack thereof. You must understand that if you trade against the major firms and funds with high-frequency algorithms that create advanced mathematics, you will lose money. You need to operate on those markets where you have advantage over your opponents, for example certain skills or information. That’s why I like to trade Bitcoin, of which I am well aware and do not like the markets of oil and gold, which I’m not good.
— What will be your time period in the positions? We talked about this last time, I strive to capture the most strong price movements, opening with the least number of positions. Thus, I save on fees, leaving less chance for error. Thus, I look at the markets in the macro perspective and choose the position that can be weeks or even months. In the end, everyone chooses what he likes, but I, as an impatient person, emotions take over and open too many positions.
Attractive if market conditions? For me personally, attractive market conditions is the presence of volatility, supported by a emotional money. I don’t love the markets, the price of which is slow and choppy. Typically, in such markets face a variety of algorithms that will easily squeeze you out of the market.
- Trade and investment strategies
Strategy is your approach to the market that suits your competitive advantage, risk profile and personal qualities. I share your investments in different baskets, depending on the investment horizon. I have a basket for the long term (over 10 years), basket for the medium term (swing trading, from several weeks to several years) and a basket for venture investments (high risk/high profit).
After I determine the strategies and the amount of money that is determined for each basket, I start looking for trading setups that fit current market conditions (phase). If the market is in a period of accumulation, I tune for the purchase and long-term retention. At the beginning of a trend, I prefer swing trading. If the market price is unpredictable, or the bubble has burst, I usually go from the market, may buy the asset at the bottom, but much more conservatively.
For each strategy and baskets need to have the plans for risk management that suit them. Risk management is to control position sizes, stop losses and profit targets. You should always plan your trade and investment in advance, then you will not have to encounter any unforeseen circumstances.
- Your psychological perception
This is probably the most important part in investment and trade, because if your perception is you fail, your strategy, market selection, and so will bring you nothing. In your perception should always be the opposite point of view, it is necessary to critically evaluate everything and not be afraid to oppose the majority. This does not mean that if the majority, for example, is configured to bear against any action, you have to go and buy it, or Vice versa. You just need to learn to think and to always ask the question “why the majority can be wrong?”. In most cases, it is in these moments you will open great opportunities, as it was with BTC in the early stages and 40-50% drawdowns in the stock market. Remember that when you see a strong emotions, it often indicates a good potential for profit.
You will also need to properly handle and analyze their own losses. Should not emotionally attached neither profitable nor unprofitable transactions. Imagine the trade, like walking on a tightrope, on one side of which is fear and the other greed.
You have to remain confident and bold when you know what’s going on. Don’t be afraid to put your money, when you realize that the situation is unfolding in your favor. Don’t get attached to losing, and don’t try to beat the last of the strategy which is not working. Chris Dunn