Traders are very ambitious, and they tend to want to trade every single minute of the day, but they should understand that the quantity of trades is less important than the quality of each one. To maximize your trading profitability, focus on the 20% of your trades that yield the most profit and analyze the other 80% that result in losses or no profit. Then, you can do adjust your trading strategy in accordance. Below-mentioned explains some tips to increase trading profitability.
Position size should be smaller than when day trading
The number one tip to increase your trading profitability is to make your position size smaller than you were when day trading. This is particularly true if you’re using leverage. Larger positions can magnify your winnings and your losses, but they can also have catastrophic effects on your account balance. To avoid this, always limit your positions to less than 1% of your total account balance. It sounds counterintuitive, but it’s true.
The next tip is to understand how to set a stop level for your trades. Stop levels shouldn’t be random or uniformly set for every trade. Instead, determine what size is best for your situation and trades. You can also use alternative methods to determine the correct stop level. In addition, you can choose a fixed dollar stop level.
Stop loss orders should be placed wider than when day trading
When day trading, you should place your stop loss orders wider than normal. The reason for this is that you’ll earn more profit per trade if the price moves more than your stop loss. You’ll also make more profits if you enter trades close to the market structure. Stop loss orders are used as a way to protect your trading capital and ride huge trends. In other words, the narrower your stop loss, the wider your profit margin.
When swing trading, your stop loss order will be set at five cents. While this level works well for many stocks, it won’t work for a volatile or expensive stock. In fact, a 5-cent move in a $5 or $10 stock is a pretty big deal, but nothing in a $200 stock. So, make sure you use a wider stop loss order and set your exit points properly before you enter a trade.
Avoid trading if you’re angry, upset, or unfocused
Trading can be difficult, especially if you are not focused and emotionally stable. Anger can cause you to place impulsive trades and lose money. If you are upset, you might also start throwing things or kicking your cat. If you’re angry, you might even spit at your computer screen. These types of actions can lead you to miss great opportunities and hurt your trading profitability.
Traders should review their trades to identify mistakes and strengths and to keep their focus. Profitable trading is not an overnight achievement; it takes hard work. It’s a constant process. You have to take deliberate actions daily to improve your trading profitability. Avoid discussing your trading strategies with others while you’re trading. This will only lead to second-guessing your decisions and may cause you to abandon your methods and strategies. After all, you’ve spent hours researching your strategy and developing it for success, so it’s worth sticking to it and following your plan.
Creating a trading plan
Trading can be risky, and a good trade plan sets limits on your risk per trade. A good rule of thumb is not to risk more than 2% or 3% of your trading account on any one trade. You also want to consider portion control, which means sizing your positions to match your budget. For example, a trader with $150,000 in trading capital could set a maximum amount per trade at $15,000 and a maximum number of shares to buy at 222.
The next step in creating a trading plan is to set your money management rules. Money management is the foundation for any trading plan. Your trading strategy must be based on your personal financial situation, and if you have a limited amount of capital, a potentially profitable strategy will be worthless. Be realistic about your trading capital, and be sure to clearly state this in your plan. As with any other plan, a trading plan will be useless without a solid money management strategy.
Keeping risk low
When a trader follows strict risk management rules, his or her profits will be almost guaranteed. A “home run” trade, when a trader makes profits that are exponentially higher than the original investment, will increase the account size by order of magnitude. Traders with tight risk management practices will eventually experience this type of trade. In the meantime, they’ll be able to enjoy a higher level of trading profitability.