Things every trader should know

Three things every trader should know:

1)Know Your Edge

2)Know Your Risk

3)Know Your Self

Know Your Edge

Obtaining a trading strategy or methodology which has produced a consistent stream of profits over time with acceptable drawdowns has to be the best starting point for the trader. Trading is a game of probabilities, so only taking trades which have a better chance of success than failure provides one with an edge mathematically as well as psychologically.

Know Your Risk

Before entering a trade I would want to know exactly how much trading capital I am risking as a percentage of my account balance. Even the best traders and trading systems suffer drawdown periods where a run of losing trades results in a temporary dip in trading equity, so I would want to limit the amount risked on each trade to 2 percent of my trading capital.

Know Your Self

This may sound like an odd one, but a trader’s character really does comes into play during the trading process. It is very easy to enter into a position, but once established one’s objectivity can become clouded as the human tendency to will the market in your favour comes into play. This becomes more of a factor as the amount of capital at Risk increases and the less sure of one’s Edge. Make sure that your trading style fits your personality, and new risk more capital than comfortable with.