Tip #1: Let your winners run.
To stretch your trading profits, you must avoid the natural tendency to take small profits. To make more money, you have to be willing to scratch some trades and take small losses to get the occasional big winners that can make your week or month.
Tip #2: Keep your losses small.
You must, I repeat MUST, keep losses in check in order to grow your trading profits. One big loser left unchecked can wipe out many good winning trades. Don’t ever let a single trade ruin your week or month.
Tip #3: Adjust position size.
On a great hot streak? Consider trading a little bigger. Struggling to hit a single? Consider trading smaller. Don’t be afraid to adjust position size based on current results.
Tip #4: Pyramid winners.
Consider adding to a winning position as it moves in your favor. A good pyramiding strategy may allow you to add more size and boost a trade’s profit potential while keeping risk in check.
Tip #5: Use leverage wisely.
Leverage may be used to trade large contracts or larger share sizes. Futures contracts, for example, require a margin deposit that typically represents a small percentage of the total contract value. Be careful, however, as leverage can magnify both gains and losses and is not suitable for all investors.
Tip #6: Use options.
Options can be used to trade market direction and volatility and may also be used for premium collection strategies. A long option, for example, may offer a significant profit potential with limited risk.
Tip #7: Make a trading plan.
Trading without a plan is a recipe for disaster. Decide what you will trade and how you will trade it before calling your broker or placing an order. As the saying goes, “Plan your trade and trade your plan.”
Tip #8: Avoid overtrading.
Make it a point not to trade just for the sake of trading. Let the market come to you. When there is no setup with an edge or risk/reward that makes sense, sit on the sidelines. There will always be another trade.
Tip #9: Shop brokers.
Commissions and fees can have a significant impact on your bottom line. Look to minimize this impact as much as possible by comparing brokers or clearing firms. Look for extremely competitive rates and positive customer reviews. A low-cost broker may allow you to keep more of any potential profits.
Following these nine trading tips won’t guarantee you success but may help maximize your profit potential.