Last Updated on 10 February, 2024 by Rejaul Karim
If you ever have tried your luck in the financial markets, you know that trading isn’t easy. It takes a lot of time and effort, and isn’t anywhere close to as simple or quick as the videos and examples on many trading sites make it seem.
In fact, many of those trading sites, share so-called “trading hacks” that claim to help you make money in a very short amount of time! However, trading hacks, in the form of tips and tricks that will let you make money effortlessly, don’t exist! Trading is hard regardless of how you go about!
Still, there is some advice that used right, definitely could guide you to profitable trading. Considering that very few know of or use them, they truly are trading hacks! That’s what we’re going to cover in this article!
Here are 8 trading hacks that will let you help you to become a better trader:
1. Use Backtesting
Backtesting is when you look at historical data to simulate how an edge has fared historically.
One of the biggest mistakes traders make, is that they don’t know the odds of success for a trade before they enter it. They use their trading indicators and technical analysis setups to find profitable trading entries, and believe that the market will behave in a certain way since this or that indicator showed some good readings.
The truth is that very little of the technical analysis that’s out there works! Technical analysis in itself is merely a tool to quantify and describe market behavior. And as with any behavior, there is bad and good behavior.
In today’s markets, edges are becoming ever harder to find. The competition is increasing, and you have to step up your game if you want to make money!
Considering that most traders don’t use backtesting, starting to backtest your ideas could very well be classified as a trading hack. It will give you a great advantage over your competitors, and you’ll be able to quickly separate the wheat from the chaff!
Still, this trading hack isn’t foolproof. Designing your own trading strategies could easily lead to curve fitting, which means that the strategy seems to work, but just is the result of fitting your rules to random market noise!
2. Go With Higher Timeframes
The next trading hack is all about the time frame. Many beginners are really keen on trading on low timeframes, such as 5 or 10 minute bars. The fast-paced market action gives the impression that money can be made quickly if you just manage to time those reversals that are so apparent with hindsight!
The fact is that the lower the timeframe you use, the harder it gets to find an edge. The random noise, which is always present, increases in intensity with lower timeframes. This means that much more of the price action in five-minute bars is random, than that of daily bars for example. Higher timeframes include more market action, and average out some of the market noise so that it doesn’t distort the image as much.
This is why we actually recommend that you go with daily bars. Representing one trading day, daily bars are used to a much greater extent by market players, than for example five minute bars. In other words, more decisions are made based on where the daily price goes, which in itself also helps with limiting the randomness in those timeframes.
In our experience, trading systems based on daily bars are more robust, and tend to be harder to curvefit than those built on lower timeframes!
3. Don’t Look at Trades With Hindsight!
If there was a trading hack that could make you mentally stronger and more focused than your competitors, then you probably would be very interested!
Well, not looking at trades with hindsight is one of those trading hacks that could give you this very advantage!
Many traders spend their time looking at what they could have done. They wish that they held a trade for longer than they did, or went out right before the market lost 5% in two bearish days.
These traders focus on what as happened, and aren’t solution-driven. Instead of trying to improve their trading skills they cherish in the thought of how much money they could have made, and forget what is important, namely to evolve and continue to improve for the future!
4. Don’t Look at the Single Trade!
Many traders haven’t understood that trading is completely random at the single trade level, but becomes a game in your favor when many of those trades are put together.
Put differently, anything could happen to a single trade. It could be a loss, a win, or produce breakeven results. However, if you have a trading strategy that works, these random trades added together will give you an edge in the market. You just don’t know when the losses or wins are going to occur. It could very well be this trade, or the coming one, or the one after that that brings the profits!
In other words, it’s useless to analyze your results based on one single trade! You need several, and preferably hundreds to draw any robust conclusion!
5. Keep Preserving Your Capital Your First Priority!
One of the biggest mistakes made by traders is to take on excessive risk in hopes of reaping quick rewards.
Actually the right mindset is not one where maximizing profits becomes the main priority, as you might assume. Trading is a marathon, that needs to be endured for a long time. Those going for short sprints indeed can make a lot of money, but will eventually end up losing it all due to one big blow!
For example, let’s assume that trader one risks 20 percent of his capital on each trade, while trader two risks only two percent.
Now, as long as everything goes as planned, trader one will make profits ten times the size of trader two. However, he’s also risking way too much, and will soon be out of the game, when the inevitable losing streak rears its ugly face!
One of the most challenging aspects of being a trader is to strike a balance between risk and return! In order to make money, you must take risk, but if you risk too much, you may lose it all!
6. Empower Your Mind
Trading is a highly mental acticity, and one of the main hindrances on your way to making money, is going to be yourself!
We hold on many biases that we’re unaware of, and learning to tackle these is key to becoming a high performing trader. When we’re under pressure, like in a drawdown, we tend to make decisions that are not very beneficial for our trading. That’s why we need to understand the irrational parts of ourselves better, to be able to stay rationale in less emotionally stable conditions.
If you want to learn more about this, we’d recommend that you have a look at books by Van Tharp or Brett Steenbarger!
7. Don’t Daytrade Discretionarily!
Daytrading is the most alluring trading form among beginners, and there are many out there who claim to know how to daytrade the markets.
What they don’t tell you, is that discretionary daytrading has become practically impossible with more efficient markets. As we’ve said several times, the markets are now crowded with people who seek to make money. And in that process, the edges that before existed now have become so scarce and weak that they’re either unusable, or have disappeared.
Knowing what trading styles that are worth your time indeed is a trading hack! We recommend that you focus your time and effort on something else than day trading. If you’re new to the markets, swing trading is the perfect choice for you! With a good swing trading strategy, running your trading business could take as little as 15 minutes a day!
And for those who really want to take their trading professional standards, we recommend algorithmic trading!
8. Stop Looking for Trading Hacks!
You’ve come to this article to get some quick and easy trading hacks on how to make money fast, right?
Well, we’d love if there was anything like that, but unfortunately, there isn’t! The markets are becoming ever more crowded, and anything that could be a “trading hack” is going to be very short-lived before picked up by enough traders for it to disappear completely!
If you want to ever become successful for real, you must be ready to put in the hard work! Long-term successful trading is the result of hard work and nothing else!
There really aren’t any good trading hacks that will turn your trading around like magic, However, in this article, we’ve provided some great tips on things that most traders get wrong. With that in mind, each of the things outlined here could be called a trading hack, since they will help you get ahead of the masses!
If you’re serious about your trading, we recommend that you have a look at our article on algorithmic trading!
How can backtesting improve my trading strategy?
Backtesting involves analyzing historical data to simulate how a trading strategy would have performed. It helps traders understand the historical success rate of their strategy, providing insights into its viability and potential shortcomings. This analytical tool is crucial for informed decision-making.
How can I avoid the hindsight bias in trading?
Avoiding the hindsight bias involves focusing on solution-driven improvements rather than dwelling on missed opportunities. Traders should shift their mindset from what could have been to how they can evolve and improve their skills for future trades.
How does preserving capital contribute to long-term trading success?
Preserving capital should be the top priority for traders. Excessive risk-taking may lead to quick profits, but it also increases the likelihood of significant losses during inevitable losing streaks. Balancing risk and return is essential for sustained success in the marathon of trading.