By: Cas Daamen
In this short article I’m going to do my absolute best to share principles that will help you to become a profitable trader as quickly and as efficiently as possible. Because, if you really zoom out and take a look at what you need to master in order to make money from trading, it all is pretty basic. However, most online educators do their absolute best to make it seem complicated. So, to counteract that: here’s a short article with everything you need. Zero fluff.
What type of trading strategies are there and which ones actually work?
When you do a quick online search for trading strategies, it often seems like there are 1000’s of strategies one can pick from. However, if you dumb trading styles down to it’s absolute basics, there are basically 3 styles you can trade:
- Short term momentum (breakout trading)
- Long term momentum (trend following)
- Mean reversion
These are 3 academically proven effects that exist and persist in financial markets. Some markets have more of a mean reverting character while others have a more momentum character, but in general, these are the 3 proven effects.
The job of a trading strategy is to capture one of these effects. Also, it’s impossible to capture all these effects with just one strategy. There is no holy grail. Every strategy has its pros and cons and works in its own market environment.
If you have a strategy that does not capture such an effect, you are probably trading a different style, such as arbitrage. But generally speaking, in the retail space, if your strategy does not capture one of these effects, your strategy will probably stop working in the future.
So, take a look at your strategy: does it clearly capture one of these effects? If not, you have work to do. If you are not clear on which effect it captures, you have work to do.
The easiest way to become a profitable trader
Trading is extremely difficult. You are up against the best of the world and there is no beginners arena: when you dive into the stock market, FX or commodities, you are in the same arena as the professionals. The “easiest” way to become a profitable trader is to move to an arena where there are less professionals. One of the ways to do this is to move to a market that has less professionals.
Crypto is one of these markets. Crypto is still quite new, extremely volatile and most professionals don’t want to take the risk associated with crypto trading. This means there is opportunity because your competition is lower. Crypto is also extremely emotionally driven. All this creates an inefficient market that is volatile and that has less competition. This is the arena or poker table you want to play at.
As a retail trader the odds are stacked against you. By going for the easier poker table, you stack them a bit more in your favor.
If you then also pick a trading style that suits that poker table best, you are ahead of most people.
If you are going to trade crypto, the easiest edge is short term moment trading to the long side. Coins can go up 100% ‘s of percentages without any issue, but can only go down by 100%. There is a positive skew here which you can take advantage of. Since crypto is really momentum driven and very emotional, it’s quite easy to capitalize on the big moves using this type of trading style.
What are the benefits of automated trading?
So, you now know which poker table is the easiest and which trading style is best for that poker table. But, what’s the best way to go about it? It’s by going for a systematic trading style, preferably automated. Why?
Systematic trading is 100% objective. This means there are no grey areas. There is no “uh” or “ah”, just a set of clear rules to follow. As a struggling or beginning trader, it’s easier to become profitable with systematic trading than with discretionary trading, because it’s so objective and rule-based. Also, success with discretionary trading (doing technical analysis) relies on experience, which you don’t have as a beginner or learning trader.
To top that off: most professionals are using systematic trading and the ones that use systematic trading out perform the ones that don’t.
So, choose for systematic trading and stack more odds in your favor.
Why trade via prop firms and when are you ready to get started with prop firms?
Prop firms are a great way to scale up your trading capital without risking a lot of your own capital. However, this comes with a caveat: only go for funding once you are profitable and know all the rules of the prop firm.
Here are some guidelines to follow for prop firm trading:
- Choose one that has a solid reputation
- Only apply once you are profitable with your own money
- Have a clear business plan for the evaluation phase, real money phase and for scaling up
- Know every single rule before applying
By just doing these 4 things, you make it a lot easier for yourself to succeed.
By using the trading styles described above and combining it with a solid prop firm, good risk management and a clear business plan for prop firms, you stack all the odds in your favor and make it a lot easier for yourself to make money with trading.
To conclude
I know this article was all over the place, but I have done my best to, within 1040 words, give you as much value as possible. I hope you found a lot of value from it. Focus on playing at the easier poker table, focus on trading proven effects and do it as systematically as possible. This really is the easiest way to become a profitable trader. Then, once you are a profitable trader, scale up your capital. A great way to do this is by using reputable prop firms in an organized, professional way.
If you have any questions about it, you can contact me via Instagram: @daamencas or via my website http://cdfxtrading.com/
