Making profits trading the financial markets is very difficult. Very few traders make steady profits for long periods of time. The key to success is to trade according to your own set of trading rules in a consistent manner.   

The first step is to define what you are going to trade

• What amount of risk are you willing to take?  

Futures and options can have a very high leverage. Of course this can boost your profits, but can also mean loosing a lot of money in a short period of time. Before trading derivatives like options and futures make sure you understand exactly how these products work. My advice is to first start trading on paper as if it was real money and see if you can establish stable results over a long period of time.

• Make sure you trade in very liquid stocks or futures. 

More liquidity means easier getting in and out of a position.

 The second step is to define your trading rules:

• What indicators are you watching when deciding to enter or exit a market  

Make use of indicators that make sense to you. A number of indicators are described in our indicator page. Personally I prefer a combination of a longer term trend indicator and a short term indicator to indicate in and exit levels.

• What percentage of your risk capital are you going to invest

Make sure when trading options and futures only to trade with true risk capital. 

• What is going to be your stoploss level?

This is a crucial decision. Testing points out that a strategy of cutting your losses in time and let your profits run works best. Many brokers offer the possibility for a trailing stoploss. This means that your stoploss level rises, when markets rise. Never underestimate the importance of  stoploss levels. A very common problem (day) traders are experiencing is the difficulty of cutting losses in time. 

• At what level will you take your profits  

Make sure that you always let your profits run longer then your losses. That way most trading systems will generate money over time.

• Are you taking overnight positions or not  

If you decide not to take overnight positions your software will probably point out that that will limit you profits. However there is one huge advantage in closing you positions at the end of the trading day: You will start each new day with a clean sheet and won't have many sleepless nights.

The third step is decide whether you going to interpret markets your self according to your trading rules, or putting your rules into a computer and making it a mechanical trading system.

• The benefit of a mechanical trading system is that the computer has a discipline human traders can never reach.  

A mechanical system gives you the opportunity to trade consistent over a long period of time, without being tempted by sentiment. Also the ability to back test your system on historical data is a huge advantage. Make sure your trading system works on other markets and different timeframes then the one you optimized it on.

• The benefit of trading yourself is that you can react on news and figures yourself and don’t have to wait for a trading signal of your computer.