A market veteran’s rules for successful trading

Khwezi Trade has made a study of those who win and those who lose. Here’s what it found.
One of the biggest mistakes new traders make is to double up the size of the trade when they have early success in trading. Image: Shutterstock

Khwezi Trade co-founder Mark Wurr has spent nearly two decades in the financial markets and has made a study of what separates the successful from the unsuccessful trader.

“From my many years observing traders, those who make good returns consistently observe some basic rules and disciplines. It is not so much the directional indicators they use, but the money management they apply. They set stop losses and don’t change them, so they get closed out of losing trades without making too much of a loss. They also set reasonable-take profit levels, so they leave something on the table when trades are successful.”

One of the biggest mistakes new traders make is to double up the size of the trade when they have early success in trading.

“It has often been said that having early success in trading can be a curse because it invites reckless trading behaviour.

“You have two or three good trades in a row, you feel invincible, and then you double up on your next trade, and that’s when the losses start piling up,” says Wurr.

“Unsuccessful traders will adjust their stop loss levels in the hope that a trade that goes against them will reverse, or they get greedy and refuse to take profits when they are there to be had, hoping for more profits, only to watch as the market reverses direction.”

Wurr and the Khwezi Trade team put together the following observations for traders to consider when they enter the markets.

1. Money management is more important than calling the market move correctly

Making money trading online using leverage is risky; it can be very lucrative, but the money is not just made getting the market move correct, it also involves money management. It is important to know that you will not always make profits and that taking losses is part of the game. Trading is very much a game of trying to go seven steps forward and accepting that you might need to take three steps back. Success in trading comes with the ability to learn from mistakes (and not repeat them).

2. If you make decent profits initially do not immediately increase your position size.

Gearing in the financial markets can be a gift or a curse. It allows you to invest with more capital than you actually have, amplifying both your wins and losses. The danger comes when a trader has had some success in trading and then, through gearing, doubles the capital at risk in the market. Just because you had one or two successful trades does not mean this will repeat. Therefore, do not increase your position size in relation to the growth in your account size. Rather scale back your position size and so reduce your risk. Traders who have just been through a losing streak want to win it all back on the next trade and so take exceptionally risky trades that could wipe them out. This is trading ruled by greed and emotion; the two worst enemies of traders. Stick to a conservative plan and build up your account bit by bit.

3. Do not change your stop losses

Stop losses are used to prevent runaway losses in the event of a trade going in the wrong direction. Unsuccessful traders will move them in the hope that a market reversal will rescue them from a bad trade. This seldom works and can be fatal. Your stop losses should be calculated according to risk profile, and if your trade hits your stop loss, it provides you with proof that the specific strategy you intended to trade has changed, so you need to change with it. A stop loss is there to keep your trading plan consistent regarding your money management. (You can, however, change your stop loss if you use it as a take profit).

4. Do not reverse your position

If you have been holding a position for a while and the market trends your way and you decide to take a profit, the temptation is to reverse the position and go the opposite way. That’s a bad move. We all have a fear of missing out and the temptation to dive back into the market – in the opposite direction – can be huge. You need to stick to your trading rules, with clear triggers for market entry and exit.

5. Trade instruments that interest you and you are familiar with

Choose instruments that interest you. In South Africa, gold is part of our economy so watching the gold price makes sense. The Nasdaq index is great because the tech world is constantly changing, and the volatility can be fascinating. By watching a select few markets, you can get to know how they move and if there are any discrepancies it could translate into some great trading opportunities. You will be more confident in making informed decisions when watching a select few instruments.

6. Work out market trends

Spend time and work out if a market is in a long-term trend or not. Trending markets are best traded by holding onto your position for a long period while volatile markets are best traded actively. Decide what bests suit your risk appetite and choose your markets and trades accordingly. Your perspective is improved when studying longer time frames, as the market tends to respect levels of support and resistance on these time frames. The longer time frames consolidate and filter out the noise of the shorter time frames.

7. Do your technical analysis

This is your study of the charts, and every trader will have a slightly different way of looking at the markets. There are scores of instructional videos on how to analyse charts and these are available at Khwezi Trade. Study the charts, see what technical indicators work for your style of trading and give it a spin on a demo account before putting real money at risk. In nature, history repeats itself, and the markets have natural participants, so this same concept applies. Even if you don’t use the chart studies it is imperative to look at the charts to get a feel for the market, glancing at the various time frames will instantly put you in the picture of what has happed and will certainly help you make a more educated decision of how to place your next trade.

Brought to you by Khwezi Trade.

Khwezi Trade is a division of Khwezi Financial Services, an authorized financial services provider. FSP 44816

Moneyweb does not endorse any product or service being advertised in sponsored articles on our platform.

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