A trading method, in order to be a fruitful one, should have several things depending on the type of trading and based on the investor who has implemented the same. There are no pre-defined trading methods that will work for everybody. It will vary from trader to trader, although there will be some basic things that all trading methods should have to ensure trading success. Below are a few:
1. Should teach the trader how to identify a trading opportunity
For a trading method to be a good one, it should be able to show you how exactly you can identify trading opportunities, leaving no room for uncertainty or confusion. If your trading method doesn’t show you in detail as to how to identify when to trade, and you are left on the mercy of your own devices and guess work, it time you changed your trading method.
2. Should be able to tell you when to Enter the trading market
A good trading method will act as a step-by-step guide to educate you on when exactly to enter the trading market. Failure to enter the market when the time is not ripe with either get you in too early, or too late, both with the prospect of causing you financial loss or eliminating your profit potential. As such, it is important that you always ensure that the trading method which you research will include rules on when to get into the market for maximum profit potential.
3. Should teach you when to Exit the market
This is probably the most important requirement of all. Not many trading methods with provide you with detailed information about when you need to get out of the trade. Many of the market analysts that you see, or even your own broker might tell you to buy a stock, and hold on to it for dear life as long as possible. That may have been true 20 or 30 years ago, but in today’s market, that mindset will almost always lose a lot of money for you. So look for a trading method that will tell you exactly when you should get out of the trade, which will help you protect your profits and minimize your loses, as well as reduce your risk.
4. Should teaches you how to minimize your risks
This is probably the second most important thing. We as stock traders will have losses. We will enter into risky trades. Some of them will go against us. That is the fact of life in the markets. Accept it. But minimize it. A good trading method will have rules and information on how to minimize your risk in a trade, in order to protect your money. Yes, we will always have bad trades and lose money. But minimizing the risk in our trades will reduce those losses, which means overall we will be more profitable and successful when trading.