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7 Pillars of Successful Trading
Today, I’m sharing a few points that I got from Brandon Wendell a few months ago when he spoke at the Asia Trader and Investor Conference. Brandon is a former stockbroker, brokerage trader and hedge fund trader.
- Fundamental Analysis
- Technical Analysis
- Execution
- Ability to execute at most favourable points
- Confident exits
- Conditional orders
- Automatic executions
- Three sided orders
- Live data feeds
- Risk management
- Psychology
- Trading plan based on your capital, time frame, risk tolerance and trading style
I think most of these terms should be quite straight forward. I will take this opportunity to explain more about conditional and three sided orders.
You will probably be familiar with the basic single order. This is the typical buy or sell order that you perform when you execute a single trade. This is also the only kind of order that most traders use.
There are a few other kinds of orders that help in automating trading and are used by most professional traders:
One Cancels Other
This is a type of order where either one of two orders will be executed. For example, if I already hold 1000 shares of SGX bought previously at $10, I might have two sell orders. One that is triggered at $9 and another at $11. The $9 is the stop loss order while the $11 is the limit order. Once either one of these orders gets filled, the other one will be automatically removed from the system.
If Then
This is a simple conditional order. If the first order is filled, another order will go live. For example, the price of SGX could be currently $10. I put in a “if” buy order of $9.50 and a “then” sell order of $10.50. If the buy order gets filled, the sell order at a price of $10.50 then goes live.
If Then One Cancels Other (Three sided order)
If the first order is filled, another two orders will go live. For example, the price of SGX could be currently $10. I put in a “if” buy order of $9.50 and two sell orders, one at $8.50 and one at $10.50. If the buy order gets filled, the two sell orders will become live. Once either one of the sell order gets filled, the other sell order will be removed.
Trailing Stop
This is a single order that will move in the direction of the order. For example, if SGX is trading at $10 and I have a sell order with a trailing stop of $1, the sell order will have an initial price of $9. If the stock price moves up to $10.50, the sell order will be moved to $9.50. If the price moves further to $12, the sell order will be moved to $11. A trailing stop is useful to ride out your position in the direction of the trend.
The pillars given by Brandon Wendell are very real and practical. There really isn’t any “secret” or “know-how” that can change a person into a master trader overnight. It is the application of all these pillars and real time practice that will gradually hone and improve your trading skills.