Elements of success in trading are based on three important components:
- Trading system or trading techniques.
- Risk management.
- Discipline in trading.
Many beginners make the mistake of focusing on finding a great trading system or technique without knowing exactly what they are looking for. If you look at the illustration, it can be seen that trading systems or techniques are only 15% important, risk management is 35% important, but the most important element is trading discipline, which accounts for 50% of the total.
All three elements are important, and none of them should be overlooked. The order of importance may differ, but beginners should focus on the most important things first and gradually learn the less important ones.
Did you know that there is a 7-day course taught by a successful professional trader? The first 5 days are dedicated to teaching pure trading discipline, followed by 2 days on trading techniques and risk management. This is because discipline in trading is what sets successful traders apart from others, even if they are using the same techniques.
Beginners need to understand this and not waste time and money by wandering off in search of the perfect trading system or technique. Instead, they should focus on developing discipline in trading, which will help them in the long run.
Photo credit: Getty Images/iStockphoto | Creator: stevanovicigor
Discipline in trading.
The Elements of success in trading is having trading discipline. How to have discipline in trading? It’s purely a matter of psychology. If you want to practice discipline in trading You need to eliminate as many of these behaviors and emotions as possible that hinder the growth of your portfolio. These include:
- Greed: While it’s okay to be ambitious, excessive greed can lead to overtrading.
- Overtrading: This is a self-explanatory term that needs no further clarification.
- Being too emotional: When you overtrade and happen to make a profit, you might be tempted to think that you are doing everything right. This can lead to further overtrading, resulting in significant losses. Alternatively, you might quit trading altogether, thinking it’s just another form of gambling.
- Lack of a goal: Losing a lot of money through overtrading can make you lose sight of your objectives.
- Not following the system: When you fail to follow the system, you lack discipline.
- FOMO (Fear of Missing Out): When you miss out on a trade, you may be tempted to copy others, leading to further losses.
- Overconfidence: Overtrading successfully can lead to overconfidence, which can cause money loss.
- Ego: Having too much ego can make you believe that your ideas are superior to the system you are using. This can make you deviate from your trading plan.
- Lack of confidence: When you lack confidence in your system, you might not follow through with trades. Backtesting your system can help you gain confidence.
- Fear: Fear is the result of several of the above behaviors.
- Failure to analyze mistakes: Many people do not analyze their mistakes, leading to repeated errors. Writing comments on your trades can help you analyze them later.
- Lack of understanding: Lack of understanding of trading techniques can lead to mistakes. It is essential to understand each technique before using it.
The most important Elements of success in trading is ‘discipline’. It is purely a matter of behavior and emotion. You have to be honest with yourself and take responsibility for your actions. No one can teach you discipline. It is something you have to learn and train yourself on. Discipline is not easy. But it can happen if you have determination. Remember, success always comes to those who deserve it.
The other two components are the trading system or trading techniques and risk management. I will write about it in another chapter. For this chapter, we will focus on only the most important elements first. So that beginners can focus on the most important parts first. Let’s start training to become a successful trader.
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