Smart Trader: How to Become a Smart Trader
A smart trader is a trader who can consistently generate a profit. That is it. Traders around the world will trade different type of markets, whether it is the stock market, the foreign exchange market (forex), or the futures market. These markets are predictable, but not guaranteed. The reality is that all trader’s to lose, and nobody can predict the stock market with 100% accuracy.
You will learn throughout this article that being a trader is not about being correct, it is about being profitable. Smart trader’s know how to properly manage risk and instead of being the gambler, a smart trader is a casino. Smart traders user basic probability combined with risk management techniques to continuously generate a profit.
Smart traders know that to be profitable, they must have control over basic psychology. It is hard to watch yourself lose money and not react impulsively. The way a trader will make money when trading some form of security is by positions trading with a risk: reward ratio and control their psychological impulses. What does this mean?
If you could risk one dollar to have the opportunity to make $5, would you do it? Of course, low risk, high reward. This is what traders will do. A smart trader will set his or her stop-loss and take-profit orders in a position where every $1 they risk, they have the opportunity to make more. This manages risk and gives them a profitable edge. With a 1:5 risk reward ratio, the trader knows that in order to break even, they must be right 2/10 times, 3/10 and they profit.
Knowing this, a trader will first analyze the market he or she is currently trading. After going through all the possible trades they could take, they find one with a high probability of being correct. How do they know the direction the security will go? Technical analysis.
A smart trader will first pick a trading strategy that has a high probability of success. For example, a smart trader may first open a demo account and test the strategy 100 times to see what percentage he or she is right. This will give the trader insight into if the strategy has a profitable edge or a negative edge. If the edge is negative, the trader will repeat the step until the edge is profitable enough.
For example, if a trader uses the Elliott Wave Theory as a strategy, the trader will test 100 trades. For this example, we will estimate the trader is correct 60% of the time. During this process, the trader will set positions BEFORE placing the trade and will not adjust the position. They set it and forget it. Why? They are playing probability with a proven strategy. That is why they are psychologically superior. The trader is not worried about being right, they are worried about being profitable.
How Much Does a Smart Trader Make?
Most online trading courses will overcomplicate trading, causing people new to trading to lose money. Courses like these will tell students to move positions, use ridiculous amounts of indicators, and risk more than 1% on each trade. All of this is not smart trading. It is gambling.
The good news is you can be a smart trader today. You do not need to have millions of dollars to trade with intelligence, you need to have risk management. Below are the three rules you will need to be a smart trader.
Never Risk More Than One Percent On Each Trade
On each trade you make, do not risk more than one percent of your entire trading account. This means if you have $1000 for investing, the maximum you can lose on each trade is $10. Most online brokerages will help you calculate this, but if not a calculator can help.
Use a Risk: Reward Ratio of AT LEAST 1:3.50
On each trade, you will need an incentive for the trade. If you believe a stock will go up, you should have the opportunity to make at least 3.50 per dollar at risk. This will help you play probability and win more trades.
Use a WINNING Strategy
If you are trading, a smart trader knows that in order to make money they need to be right at least sometimes. Preferably more. Using a 1:5 risk: reward ratio, a trader will need to make at least 2 winning trades in order to break even and 3 to make a profit.
This is why a trader will want to be right around 60-70% of the time, to allow for that extra room for profit. If you are a 30% trader, you are not going to make a profit in the long run with risk management itself. You will need to set yourself up with a strategy that wins. I prefer to personally trade Elliot Waves and Fibonacci Retracements, but that is my strategy. What works for me may not work for you.
ANYONE can be a smart trader. Smart traders are not people who make a lot of money, but people who are consistently profitable. Smart traders are able to make money by using a winning strategy combined with simple risk management to generate a profit. The biggest lessons I want my readers to take from this article are the following:
Smart trading is not about being right, it is about being profitable.
Smart traders are the casino, not the gambler.
Trading should be kept simple, not complex.
Risk management and a winning strategy by themselves are not the solutions. They must be combined.
When it comes to making money, people often think of a job. Jobs allow people to trade their time for money and happens to be what most people do. The problem is, you have only 24 hours a day, and not all of these hours can be spent working. Forex, on the other hand, is a business model that allows your money to work for you 24 hours a day.
Owning a business is the next reasonable way to make a living, but not everyone has an entrepreneurial spirit. Besides, business requires you to tie up most of your liquidity in inventory, supplies, labor, rent, etc. Anyone who does not already have a lot of money will need a loan, which charges interest.
Luckily, trading the foreign exchange market can be a reasonable and profitable way to earn an income. Forex (foreign exchange) trading is a popular method to make money using the money you have. It allows you to work from your computer, set your hours, and be in charge of yourself. The forex lifestyle is fun and can become your next opportunity.
Unlike a job, forex has no earnings cap. Forex trading is the process of buying or selling currencies to make money. Primarily, people will trade currencies to make money in the forex market.
The currency market can be a long-term solution to earning extra income. What forex traders do is use real money combined with technical analysis on a forex pair. After the review has been done, they will use their forex broker to make an educated decision on where to enter a trade, hoping to make a profit.
Forex and Casinos
Now, if you have never heard of how a casino makes money, you will be shocked. A casino offers people the opportunity to gamble their money with the hope of turning a profit. This is done through table games, slots, and more.
Casinos have what is known as the house edge over a game. Basically, on each contest, the casino will win more than 50% of the time on any game. Using basic mathematics, you will realize that a casino is not concerned with short-term losses. They are in it for the long-run.
Forex traders can learn a lot from casinos. In forex, you should not be worried about being correct 100% of the time while trading. A common misconception is that the only way to be profitable trading forex is to be right, but nobody is right 100%. In reality, forex is not about being right; forex is about being profitable.
How to Trade Forex
The first thing any forex trader should have is an internet connection and a computer. You will also need some cash to start trading on your account with, so make sure to have around $100-$1000, to begin with. If you do not have the money, to start with, consider a demo account as this will allow you to use the trading platform without any risk. A demo account can be a great way to learn.
Risk: Reward Ratio
A risk: reward ratio is a ratio that will define how profitable you will be trading the market. Before entering a trade, you will have to decide how much you are willing to risk to gain a certain amount.
For example, if I have three risks: reward ratio, this means that for every $1 I risk, I have the opportunity to make $3. As a rule of thumb, I keep my risk: reward ratio at a minimum of 5, meaning at a minimum, I need to be right two out of ten times to break even.
In simple terms, positions trading is when you set a stop-loss and a take-profit order based on your risk: reward ratio. I use TradingView connected with Forex.com to do all my trading. Combined, you can easily set your positions with the designated risk: reward ratio.
With positions trading, you are setting entry to the order first. This is where you first decide if you are going to buy (go long) or sell (go short) on the trade. After this, you will set your stop-loss and take-profit orders based on the risk: reward ratio.
Almost every broker will let you choose the appropriate risk: reward ratio. This is not something you need to worry about. What is more important is that you set the positions accordingly, and do not move them.
The reason you do not want to move your positions after setting them is that you are playing probability. If you only need to be right two out of ten times to break even, it will be hard for you to lose money long-term. However, if you start moving your positions, you mess with probability.
Technical analysis is where people use charts, indicators, patterns, to predict where the next move is. Using technical analysis, traders can give themselves a profitable edge over the market. Like a casino, this is the way traders can give themselves an advantage. When it comes to how to make money trading forex, technical analysis is what most people struggle with.
The critical part of using technical analysis is not to rely on one indicator or too many indicators. Babypips.com did a cool article about this, but indicators by themselves are usually not profitable. Forex is something that requires a strategy, not just one indicator will unlock the benefits of forex.
Instead, indicators should be combined with patterns and other technical analysis to develop a strategy. The strategy I use utilizes a combination of three components of technical analysis. Simple chart patterns such as the head and shoulders pattern, Elliot Wave Theory, and double tops are the first component.
The next component I use is the chart overlay Fibonacci retracement. Fibonacci numbers give great points to enter and exit trades on and are critical to the Elliot wave principle. Elliot waves tend to bounce off of Fibonacci retracements, so this is a good point to set your entry orders at.
The third component I will use is the RSI indicator. This indicator will let me know if the market’s trade volume is currently overbought or oversold. If all three of the components signal an entry, I will place my trade using a risk: reward ratio of 5.
Knowing all of this, you can make a decent income. I have now shown you my strategy and explained how to be profitable trading forex, so my suggestion is to go use a demo account. A demo account will let you test these strategies before ever using your own capital.
You can use forex.com to start trading with a demo account and see how profitable you can be using this strategy. You can also check out a few of my other articles such as:
Everyone loves the idea of using their social media presence to generate income for themselves. With successful affiliate marketing, social media can be an excellent platform for spreading your affiliate link. Affiliate marketing is a great personal online business strategy that you can develop. This type of business does not require a whole lot of startup costs. The focus is more on marketing, and less on business strategy.
Twitter can be an essential tool for anyone looking to make extra income from twitter affiliate marketing. Affiliate marketing allows influencers to earn a commission for products they promote through an affiliate link. The job of the influencers is to spread their affiliate link using their social media presence and influence to generate sales.
If you are new on Twitter, it will be hard to earn any profit through affiliate links. At this point, it will be much more important to grow your following than it will be to sign up for an affiliate network. Investing in promotion, putting out relevant content, and building your brand should be your priority.
An affiliate link is a link that a company will give influencers to get free exposure in exchange for a commission on the sale to the influencers. If you have watched YouTube, you will probably see YouTubers promoting products or services with their sign-up link in the description.
Usually, the link will give you an exclusive discount on the product or service. The consumer benefits from a premium, the business benefits from free marketing, and the influencers benefits in the form of commission. Affiliate marketing has become such a big market that businesses cannot afford to ignore.
How to Get an Affiliate Link
If you have a sizeable social media following already, it is time to get sponsored through an affiliate program. Look at your analytics and see what your audience has an interest in searching. If you look at your audience, you will see a few things. Gender, age, interests, and more.
I have a strong male social media following between the ages of 18-25. I used this information to contact Tiege Hanley, a men’s skin care system and offered them my platform in exchange for an affiliate link. With this link, I can market a product I use regularly and earn an income using my Twitter.
Next, you want to make sure the companies you reach out to are high-quality companies. The last thing you need is to promote a product that is of low quality and destroy your online reputation. Use Google to find reputable companies and products to get an affiliate program. Here is a list of a few companies you can promote based on niches:
Dollar Shave Club – Male Demographic
Bluehost – Technology Demographic
Amazon – All Demographics
Bovada – Male Sports Demographic
Using Twitter Marketing
Now, after you have an affiliate link, it is essential to start spreading this link. You will want to use your social media to begin spreading this link. Twitter, Facebook, YouTube, and Instagram, are great platforms for affiliate marketing, but the one we will focus on is Twitter.
The reason I like to use Twitter is that I have had the most success on this platform. The way I use Twitter to get sales is to tweet relevant information to my product with my affiliate link. Suppose I post an article pertinent to men’s skincare, I will put my affiliate link in the tweet also.
Something like “Check out Tiege Hanley, the most uncomplicated men’s skin care system out there. Use promo code: JOHNTOCCI for 20% off your first order! Link: http://bit.ly/2I2cnJr” works perfectly. It is short, to the point, and advertises your product.
First, on a regular schedule, I will retweet this tweet during the busiest hours on Twitter. I check my analytics to find the best time to post. The best time to post is when your followers are most active, allowing for more impressions on your tweet. The more reactions your tweet gets, the more sales are likely.
Using Twitter to spread your affiliate link is a task that requires a lot of time. You will need to build a sizeable social media following, but once you have a platform, you now have a money-making machine. Your Twitter should be able to work for you and earn you passive income through affiliate marketing.
The more sales you get, the better your income will be. If you haven’t already, start researching some target-marketing techniques to help optimize your posts for your niche. Doing whatever you can to help get more sales is vital to your success in affiliate marketing.