Successful Trading Requires Cumulative Knowledge

It takes a lot of knowledge to be a great trader

When it comes to successful trading, most traders and investors underestimate what it really takes. If you want to achieve excellent results in the long run, it will take years of proper trading education. This includes learning successful methods, strategies, and principles. You also must develop a winning traders mindset, also known as the psychological part of trading. In general terms, you will need to acquire a lot of cumulative knowledge on your road to successful trading. In this article, I will share with you some of this important knowledge.

A trading philosophy is key

A trading or investing philosophy is important. It will dictate how you go about making decisions. Trading is based probabilities. You always want to put the odds in your favor on every trade you make. This can be achieved with a winning philosophy. It is important to note that even a good trading philosophy will not help you get the results you want, unless you combine it with essential traits, such as patience and discipline. Once you establish a winning philosophical foundation, then it is a matter of acquiring a solid education. This will lead to successful trading.

A fundamental concept that makes a big difference

One of the most fundamental concepts in trading or investing is process versus outcome. Many people who get in the markets dwell solely on outcomes. They think of the potential great wealth, and do not give much attention to the consideration of process. In any probabilistic field, including trading, the best long-term performers all emphasize process over outcome. Concentrate on the process, and make sure the odds are in your favor on each trade you initiate. Once you focus on a winning process, the results you desire will take care of themselves. This concept is important when it comes to successful trading.

You can be right over half the time and still lose overall

A lot of traders and investors believe if they are right over 50% of the time, they will come out ahead. This is faulty thinking, and is simply not true. The frequency of correctness really makes no difference. It is the magnitude of when you are right that matters. As an example, if you pick 4 stocks, and 3 of the stocks each lose 500 dollars, but the lone winner nets you 5000 dollars, you are doing quite well. Your winning percentage is 25, but your overall results show a profit of 3500 dollars. This proves a major key to successful trading is the golden rule. This vital rule states to cut your losses short, and let your profits run.

Profit from irrational market behavior

Savvy traders and investors are able to systematically exploit irrational market behavior when it happens. Key points to remember include, people are irrational, markets are made up of people, and this makes markets irrational. Understanding the dynamics of the collective is a major key to successful trading.

Markets tend to have phases when buying or selling becomes dominant. This is how major trends develop. When buying becomes dominant, you get a bull market. On the other hand, when selling becomes dominant, the result is a bear market. You can accurately interpret whether the bulls or bears are in control. This is achieved by proper price and volume analysis. Fortunes are made by trading along with the dominant side. A trend can last much longer than it really should. This is because of irrational market behavior. Understanding and implementing proper trading psychology will directly lead to successful trading.


Gary E Kerkow is a stock and commodities market expert. He is a successful trader and instructor, with over 20 years experience.

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