The first concept to understand if you want to become a trader

If any of you stopped people in the street and asked them, "what is trading?", I am sure you would get a wide variety of answers. The same if you asked the same question to people who actually trade. So many answers that would only complicate a very simple concept that should be clear to all those who intend to make trading a profitable activity.

Trading is a mere matter of probability. Regardless of the various types of analysis, theories and the many charlatans posing as gurus on the internet, trading comes down to this: a probabilistic calculation.

To make money in trading, you only need two things: the odds of success on your side and a trading plan that you always stick to, without exception. Well, said like that, it sounds simple but in trading there is nothing simple except losing money.

But how do you get to be more likely to close a trade in profit rather than in loss? By analysing the market correctly. There is no other way.

Analysing a market correctly means focusing only on those forces that really move that market. For example, in Forex, it is the central banks with their monetary policy, it is the macroeconomic data. These are all forces that determine the movement of a market in the medium to long-term.

Yes, because in the short term, it is speculation that moves a market, it is investment funds with their trades. This, however, is for a few days or weeks at most because, sooner or later, they will find themselves competing with the interests of a central bank, colliding with an economy or facing a drought or an epidemic; forces much greater than themselves.

To sum up in one sentence, to have the odds of success on your side you need to know the markets and their dynamics and have a good experience.

However, knowledge of the markets and experience are useless if a proper trading plan is not built first. A tailor-made trading plan that zeroes in on the emotional component and lays down strict rules on money management, first and foremost the maximum loss one is prepared to incur if the trade reaches stop-loss.

Everything must be planned in advance so that you always know what to do even in the event of unforeseen events and do not suffer heavy losses that could undermine not only your account but also your confidence.

Thus, to consistently make money in trading you need to have the odds of success on your side, so that you close more trades at a profit than at a loss, and to organise, in a tailor-made trading plan, every aspect so that the eventual loss of a trade at most equals the potential profit and the handling of a trade is stress-free no matter what happens.

Earning from trading is not easy, but it is possible if you are willing to work and commit yourself.