The 7 Pillars of Trading
In our years of experience since 1997 teaching people to trade as professionals do, we’ve discerned these essential methods and tools for consistent profitability: “7 Pillars of Trading”.
- Macro Fundamentals – perform a pre-market review of macro-level information about the economy, the market indexes, news affecting the markets, etc. The reason? To assure you understand the context in which you are going to risk your money! Go with the trend, and don’t trade ahead of known news events such as earnings reports and economic reports.
- Technical Analysis – Choose from the many technical analysis indicators the few that you’ll you to decide whether to enter trades, at what price, where to set your profit targets with a technical reason, and where to set your stop loss with a technical reason.
- Direct Access Trading – Don’t trade where the amateurs do, through accounts at big-name retail online brokers. Instead, trade in the wholesale market as the professionals do, with a direct access account that by-passes two middlemen and gives you more control over your trade.
- Real Time Quotes – Make sure your broker gives you real-time quotes, known as “Level II” instead of 15-20 minute delayed quotes. The reason is obvious. If you lose $.05 on a 1,000 share order, you gave $50 to the market instead of keeping it in your account.
- Risk Management – Decide your rules, including what percent of your asset pie to allocate for trading. Within that, have a position-sizing rule (what percent of your trading account can be risked on any given position.) Then decide your rules for duration (how long you’ll stay in a position) and frequency (how often you will trade in a given day or week, how many losers in a row you’ll tolerate before turning off your computer).
- Trader Psychology – Be keenly aware of all the things besides your logical, technical analysis drive every-day financial decisions. Your beliefs, hopes, undistinguished philosophies, emotions, and more play a much bigger role in your trading results that you might imagine. Being disciplined and in control of your emotions is the key, and it only comes from experience and coaching.
- Trade Plan – This is the MOST critical success factor because it encompasses Pillars 1-6 above. Your trade plan should be written in such detail that another trader could follow it the way you intend it. The plan should specify what markets do you trade, what times of day, what style (scalp, day, swing, or long-term), what technical indicators and precise setups you seek, the minimum reward-to-risk ratio, how you set profit targets and stop losses, how and when you review results, and more. We provide our students with a Trade Plan template to write all this. The Trade Plan should be used like a pilot’s checklist – pilots NEVER take off without going down the checklist completely.
These 7 Pillars work holistically. Drop one out, and the whole system is weakened. Use them all, and you’ll be much more consistently profitable. HERE’S TO PROFITABLE TRADING!
