Active trading has become all the hype recently. All you need to do is browse social media. You’ll find multiple influencers talking about the latest trading platform or app. Then, there are self-stylized experts who claim they can help you improve your trading profitability overnight.

Once you get past the smoke and mirrors, you’ll realize that achieving success as an active trader is more difficult than most people purport it to be.

If active trading is as straightforward as people claim, most day and swing traders wouldn’t be in the hole, losing money. Multiple studies conducted on the topic show that most day traders fail to make profits. A study on day traders in Taiwan between 1995 and 2006 found that only 5 percent of day traders profited in options trading. Similarly, another study found that nearly 80 percent of day traders lost money over twelve months, with median losses being 36 percent.

However, that doesn’t mean that day and swing trading cannot be profitable. Developing the right trading plan can help you make more profitable trades. In addition, beginners to options trading can join options trading communities, like Trading Alphas, for the best guidance and support to help them make successful trades.

A swing trader assessing the market

How to Make Successful Trades

Here are some rules you should follow to increase your trading profitability. They include:

Always Follow a Trading Plan

The importance of a trading plan cannot be overstated. A trading plan is crucial because it can minimize losses while increasing profitability. A well-crafted one will include pertinent details such as entry and exit rules, money management criteria, and risk management principles. Traders use them as roadmaps for their trading endeavors.

In addition to creating a well-thought-out trading plan, you’ll also want to backtest trading ideas before using them in live, dynamic financial markets. Backtesting allows you to assess viability without losing your hard-earned money. You can proceed with your trading ideas if the backtesting results are favorable.

A trader viewing backtesting results

Detach Emotions

Traders often become emotionally involved, which is the last thing you want to do when trading. You might be on a poor streak of losses, but don’t let that deter you. Some traders become so obsessed with recouping losses they keep making additional trades even if common sense dictates not to do so. These traders fail to recoup their losses. Instead, they lose more trading capital because their emotions cloud their judgment, leading to poor trading decisions.

It’s important to treat trading like a business if you want to be profitable. It also means approaching it as a full or part-time business.

Traders hoping for profitability often approach trading as a hobby, which isn’t the correct approach. Treating trading like a hobby means no commitment to learning. Trading is a business because you’ll incur expenses, losses, taxes, stress, anxiety, etc.

Utilize Technology

Technology can significantly help traders when used correctly. Active traders must utilize technology because it can help them view and analyze markets. For instance, you’ll need technology to help you backtest ideas using historical market data. Similarly, time is of the essence when trading. You’ll want to ensure you get market updates on your smartphone because you can’t be perched in front of your laptop the entire time.

Some technological solutions also present trading chart patterns, allowing you to determine profitable entry and exit points. Leverage the power of technology to make more profitable trades.

Protect Your Trading Capital

Saving enough money and depositing it into your trading account is only the first step. You’ll also want to ensure you protect your trading capital. Most new traders think this means never having a losing trade, but that’s not possible. Losing trades are inevitable. Even the most experienced and savviest traders cannot profit from every trade.

However, it means utilizing the proper risk management principles to protect your trading capital.

Risk Management is Essential

You must ensure you only deposit trading capital you can afford to lose. As previously stated, most active traders don’t make profits. As a result, you must become comfortable with the idea that you might not profit from active trading.

In addition, you’ll also want to use the correct risk management techniques to lower your potential losses. For instance, following the one or two-percent rule is crucial for traders. Let’s assume you’ve invested $1,000 in your trading account. The one or two-percent rule dictates that you only use one or two percent of your trading capital on a single trade. This rule is essential because trades often go wrong. Losing $10 or $20 of your capital on a single trade isn’t as big a setback as losing $500.

It also won’t put you in a position where you feel tempted to recoup your losses and start gambling with your trading capital instead of trading wisely.

Use Stop-Loss Orders

Another important thing every successful trader does is use a stop-loss order. Stop-loss orders are predetermined risks traders are willing to accept with every trade. It’s no secret that financial markets are incredibly volatile. Therefore, you cannot avoid risk. However, stop-loss orders help negate risk considerably.

Let’s assume you bought stocks in a company for $25. Ideally, you’ll want the stock price to appreciate within a few hours so you can sell it for a quick profit. But the inverse can also happen.

A stop-loss order allows you to set the minimum price for the stock you’re willing to accept if it declines. For instance, you might be willing to sell it for $23 in this scenario. Your broker or trading platform will automatically sell the stock if its price reaches this level, minimizing your losses.

A day trader’s desk

Make Profitable Trades with Trading Alphas

Making profitable trades without the right guidance is challenging. However, that’s where Trading Alphas can help.

The organization has a diverse community of over 1000 members and has helped its community make over $25 million in profits by operating one of the best options trading Discord servers.

Consider checking out their website for more information. You can also contact them to learn more or sign up as a member today.

About The Author

Aubrey Graham was born in Toronto, Canada, before moving to the United States with his mother when he was six. Graham cultivated an interest in options and futures trading when he was in college. He eventually started day trading and became highly profitable. Today, he tours nationwide, helping people learn how to trade. He’s also affiliated with Trading Alphas.