Trading is a lucrative but risky business to gain profits from market fluctuations. But not everyone can trade effectively upon entry into the stock market. Becoming a successful indices trader requires specific training, in-depth understanding, key insights, and traits.
Indices trading is one of the most popular forms in Australia that involves measuring a specific part of the stock market’s overall performance. The most well-known Australian index is the ASX 200 and S&P/ASX 200, which tracks the performance of the top 200 companies in Australia based on their market capitalisation. They provide insights to investors about the performance of different asset classes and help design portfolios. Traders also directly trade indices and make potential profits.
Understanding the Mind of a Trader
There are numerous books about being an investor. However, very few are aware of successful traders and trading strategies. Then the questions arise, like; What makes traders successful? What is the difference between trading and investment? Are there specific characteristics of a good trader? A trader’s primary motive is to observe price movements in the market and make maximum returns with the least risk of loss. They take minimal risks while buying and selling securities or their derivatives across different markets and gain from the price differences. Traders do not research the company fundamentals like investors, and they usually work on short term transactions.
The Trade Primarily with Risk Capital
One of the best qualities of good traders is that they never trade with scary money. ‘Scared money refers to the money people cannot afford to lose. Traders have the mindset of investing money they can afford to lose to make decisions without nervousness or anxiety.
They Have a Stop Loss Strategy
While many people believe that cutting losses is the cardinal rule of trading, it is sometimes necessary to sell at a loss to avoid further losses. It comes with the learning curve of being a trader. Skilled traders identify and assess the gain and loss parameters before entering the trade market and set stops to exit from them. They cut their losses by ruthlessly letting profits run their course.
They Focus on Minimal but Successful Techniques
A seasoned indices trader consistently used two to three winning strategies for their trade instead of constantly looking for new ones. Executed well, even a simple strategy yield better profits than innovative ones. They learn from the market and refine their approaches, adapt when necessary and stick to the system that works.
They Back-test New Strategies Before Implementation
With the advent of online trading through platforms like Metatrader, more and more traders are entering the market. As they use the tried and tested trade scenarios, the profitability collectively decreases. Experienced traders develop new strategies and test and validate them to understand how they would have in the past before using them in the current market.
They Stay Informed, Always
Any small news from local to international can make all the difference with trading. It can be an opportunity for the trader to stay ahead, analyse the impact on the markets, make profits and reduce losses. Successful traders have the intuition to spot them before anyone else does.
They Maintain a Trade Journal
As traders profit from trends and volatility, they maintain journals and review them periodically to refine their profit-making approaches. The review does not consider profits and losses as separate entities but as results. They always have the big picture in mind. Successful traders do not experience or express intense emotions regarding their trades. They maintain emotional neutrality to keep their minds clear about making future trade decisions.