Is forex trading profitable? Is day trading profitable? Most of the new traders ask these questions, but the answer can be yes or no depending on how someone trades. Trading can be profitable if you have a positive expectancy model in which the average win exceeds the average loss over a series of trades. Best Profitable Trader Strategy use the following factors.
Main Factors Used For Winning Percentages
The Risk/Reward ratio and the winning percentage are two main factors in profitable trading. When these two factors combine to form a positive expectancy, profits follow in the long run. Trading is not profitable if you are trading a negative expectancy model. This is the primary cause of large losses, as compared to others.
Calculator of Risk and Reward
Profitable trading does not entail winning and profiting on every trade. It is all about the math over a series of trades, not about predicting the future, making a great call, or anyone big trade.
A quantified trading system with an edge produces only one of four trading outcomes. These outcomes are a big win, a small win, a break-even trade, or a small loss. If you have this type of trading process, you will profit in the long run as your edge plays out. The most crucial aspect of the process is removing large losses from your system. Big losses eat away at profits and put a drag on your equity curve. Stop losses and position sizing are helpful to reduce the number of losing trades that occur.
Backtesting and Historical chart
Backtesting and historical chart studies are used to create a process of entries and exits that results in big wins and small losses. While stop losses keep losing trades to a minimum, trailing stops maximize winning trades by allowing winners to run. Your system is the strategy you devise for profitably managing your trades.
Psychology Of The Execution Of A Trading System
One of the most important aspects of trading is the psychology of the execution of a trading system. In any system, the trader is the weakest link. Ego, stress, and emotions can all make it difficult for a trader to stick to their system with discipline and perseverance. To execute consistently over time, a trader must have faith in their system as well as faith in themselves.
Position Sizing
Position sizing is a critical component of limiting losses. The size of your trades must be determined by the maximum loss you can sustain if your stop-loss is reached. A loss of 1% to 2% of total trading capital is a safe level to manage. In non-leveraged markets, a position size of 10% of your trading capital is generally safe. Volatility and trading range are the best indicators of how large a trade should be.
Profit Factor
The risk must outweigh the reward. At the time of entry, the profit target should be at least twice as large as the stop loss. Creating good risk/reward ratios at entry is a primary key to profitable trading, whether the trades are mechanical or discretionary. The higher the reward to risk ratio, the lower the required winning percentage to be a profitable trader.
As a trader, you must understand your positive expectancy, which is defined as how much money you can expect to earn on average for every dollar you risk.
You should always calculate your profit factor. To calculate it divide your gross profit by your gross loss (including any commissions and slippage) for the entire trading period. This performance metric displays the amount of profit per unit of risk, with values greater than one indicating that a system is profitable.
Conclustion (Profitable Trader Strategy)
These steps are very helpful in trading. In addition, learning and practice are the main factors for a new trader. Both learning and practice for a long time will make you the best trader. Most of the traders want to skip these steps and as a result, they face big losses.