How to Become a Better Stock Trader
Updated: 5 days ago
How to Become a Better Stock Trader offers a useful case study in turning market observations into repeatable trading rules. This updated guide preserves the original Financial Wisdom analysis while separating practical lessons from exceptional results and hindsight.
In This Guide
Key lessons and practical rules
The original Financial Wisdom guide and media
Evidence, limitations and risk controls
Frequently asked questions
Related guides and authoritative sources
Key Takeaways
Translate the central idea into objective entry and exit rules.
Test the method across different market regimes and include costs.
Use price, volume and market context without treating any signal as certain.
Define invalidation and position size before entering.
Original Financial Wisdom Guide
Background and Core Ideas
What to focus on?
Importance of specialization in trading.
Bruce Lee once said, “I don't fear the man who has practiced 10,000 kicks. I fear the man who practiced one kick 10,000 times.”
In sports or trading, success comes to those who specialize in one genre and practice it over and over to master the process.
The best of minds in trading and investing are the ones who swear by one philosophy and stick to it through thick and thin. They specialize and never deviate.
If you are starting out, specializing should be your goal. Given that there are a zillion ways to make money from markets, even if you specialize in the smallest part of the game, you can make a fortune.
However, given the many possibilities in trading, it’s quite natural for a newbie to be distracted easily and hop from one thing to the other without meaningful results. This article helps you funnel your path toward specializing, narrowing down from the broad set of possibilities in the different asset classes, to mastering a few set-ups to trade on a regular basis.
Here’s how you must frame your specialization journey.
Start with the asset class.
Practical Checkpoint
Define the setup, entry and invalidation level before acting.
Compare the potential payoff with risk-reward planning.
Set the trade size using consistent position-sizing rules.
Rules and Practical Application
Within a wide range of possible asset classes you can trade, you should narrow your list to one or a maximum of two asset classes. New traders would do well if they stick to one.
You must pick the asset class based on your psychological comfort. Different asset classes have different characteristics that might interfere with your optimal mental setup.
For example, commodity and currency trading needs you to trade on big leverage to magnify small moves. Many traders are not too comfortable with leverage and these asset classes would be a no go for them.
Even in a single asset class, there are a variety of instruments you can trade. For example, you can trade stocks directly or through derivatives like futures and options. While direct stock trading is less risky, the derivatives compound the risk and are not suitable for traders who are risk averse.
Most importantly, you need to learn about the asset class you want to trade. It will be easier for you to choose one over the other if you have prior knowledge of the asset class.
If you are starting afresh, you must ask yourself which asset class would come naturally to you. The idea is to not force yourself into an asset class for the lure of money. The best asset to trade is often the one you have a grip on.
Specialize in a style
Even in one asset class, there could be numerous styles you can trade. For example, in stocks, you can trade intraday, swing, positional, and long-term.
Each of these styles needs different processes and mindsets to trade.
Evidence Check
Is the sample broad enough to include difficult markets?
Do the results include spreads, fees, slippage and failed signals?
Could hindsight, survivorship or selective examples explain the result?
Evidence and Examples
Many personal factors will come into play when choosing a trading style. Factors like how much time you can devote, how much work you can do, how much action you need and how much risk you can take.
For example, intraday trading would require much more action and attention than swing trading, which in turn requires more action than positional trading.
Most traders don’t do well if they trade too much. Overtrading is a big return killer in most forms of trading. Therefore, start with a form of trading that requires less trading and action.
It’s okay if you try other styles and see what works for you but don’t blow up your account in greed. Increase your exposure only when you see yourself getting better in one style.
Specialize in one time frame
Specializing in a time frame needs you to choose a chart time frame that you would use to trade. For example, as an intraday trader, you can use time frames ranging from one minute to hours, and as a swing trader you can use days and weeks.
It’s best if you use only one time frame to find opportunities, set your entries, and stop losses. If you keep flipping between time frames, you will end up overtrading by justifying trading opportunities that don’t exist.
The best traders know their time frames very well and press the trade button only when the trade comes to them in their time frame. That’s the best setting for a trader – let the trade come to you rather than you going to the trade.
Don’t force trades by changing time frames every now and then. Choose one and stick to it even when you don’t see worthy trades for brief periods.
Risk and Limitations
Specialize in set-ups and indicators.
There is no magic indicator or setup that can help you make millions out of the market. The best indicators and setups will likely be right only half the time or less. Therefore, it’s always a factor of how the trader uses these indicators to trade.
For example, you can’t use the moving average convergence divergence (MACD) indicator in every situation and hope to make a fortune all of the time. The indicator itself will give false signals, It’s knowing when to pursue the signals and when to ignore them that makes a trader successful.
When you specialize in indicators and setups, you develop the skill of knowing when to and how aggressively to pursue the signals that show up on your screen.
It may sound trivial but it makes a huge difference when you ignore the shabby signals that bring only unnecessary losses and mental pain, both of which are big deterrents to trading success.
Conclusion
Specialization is a long-drawn process and comes with time and practice.
When you start trading, it's not a one-way, smooth journey. There will be a lot of hiccups, deviations, losses, and anxiety about whether you are on the right path or whether you have what it takes to be a successful trader. All of that is part of the game and you must persevere to succeed.
Specialization in one asset class, style, time frame, indicator, or technical setup significantly narrows down your focus, which can make it easier for you to hold your ground in the extremely noisy world of trading.
Summary of the Original Guide
I specialise 'in particular' in lateral consolidation breakouts on the weekly charts and have done so for decades.
Take the time to understand your personality, lifestyle, mindset, beliefs etc and specialise in a strategy that satisfies each of them.
Good luck!
My breakout strategy - 15 page rule book (PDF) is available for all members to use.
My Breakout Scanner - https://bit.ly/3ea6sl8
My Forum - https://www.financialwisdomTV.com/forum
My Strategy Blueprint - https://www.financialwisdomtv.com/plans-pricing
My Brokerage Account (Interactive Brokers) - https://bit.ly/3HVA1nc
Practical Limitations
Historical examples, book claims and indicator results are educational illustrations rather than forecasts. Outcomes depend on the market, timeframe, data, transaction costs, financing, taxes and execution assumptions. Test complete rules across varied conditions and define the maximum acceptable account risk before taking a position.
Put This Into Practice
These ideas become more useful when selection, entry, stop placement, position sizing and trade management form one repeatable process. The Financial Wisdom Trading Blueprint connects those decisions in a practical weekly framework.
Frequently Asked Questions
Does this strategy guarantee profitable trades?
No. It provides a framework with uncertain outcomes and must be tested with complete risk and execution rules.
What should be defined before an entry?
Specify the setup, trigger, invalidation level, position size and conditions for managing or exiting the trade.
Further Reading
References and Further Reading
Educational information only. Trading and investing involve risk, including the possible loss of capital. Examples are illustrative, not guarantees of future performance, and nothing in this article is personalised financial advice.
About the Author
Written by Gareth, MBA
Gareth, founder of Financial Wisdom, has more than 30 years of personal trading experience. He competes in the United States Investing Championship, creates award-winning trading content and has been featured in Technical Analysis of Stocks & Commodities.
👍 also; mastery before progression.
@FinancialWisdom Some wise words (no pun intended). Not sure if anyone has read "Predictably Irrational" by Dan Ariely? You may be surprised to hear that humans do often make the weirdest of decisions. The sub headline of the book - "The Hidden Forces that Shape Our Decisions" sums up human decision-making very well.
There are a ton of hidden forces which can and do get in the way of effective decision-making, for example... hunger!
For those interested, I found this post
https://www.dundee.ac.uk/stories/dont-make-major-decisions-empty-stomach-research-suggests
"This indicates that a reluctance to defer gratification may carry over into other kinds of decisions, such as financial and interpersonal ones. Dr Vincent believes it is important that people know that hunger might affect their preferences in w…