Stock Picks 101 How to Become a Successful Trader By Treating Your Trading Activities as a Business

Trading should be treated like any other business; that is, you are trying to maximize your return on investment. In trading, your "inventory" is the cash balance of your brokerage account. Using this cash balance, you try to "manufacture" a return on your investment.

Of course, to begin with, you need to have experience recognizing profitable trading situations. Unfortunately, there is no good way to do this in the real world other than to have enough trades under your belt to gain that experience. Therefore, it's highly recommended that you practice trading using a virtual account, or play account, before you go "live." Most brokerages provide such "play" accounts. Like any business, you want to make sure you have the basic techniques of the business down before you dive into it.

Fair warning: if you start trading with real money before you have a good, solid feel for your unique trading style, it is quite possible you'll lose your entire "inventory" (that is to say, cash balance), before you have developed enough expertise to be successful. Although everyone is different, typically it takes hundreds, even thousands, of trades before you can expect to develop real expertise. Depending on trading style, this will usually take months, if not years, to achieve.

Therefore, one of your initial investments needs to be the time to come up the learning curve before you actually put real money to work for you. Otherwise you will be in danger of failing before you even have a chance to really become successful.

Before you enter a trade you should have a clear idea of the risk-reward ratio and the potential return on your trade. Of course, because you are dealing with a statistical process with many unknowns, you will need to make educated guesses as to what this potential risk-reward ratio might be. This presumes you have a certain level of expertise at calculating risk-reward ratios. In most cases, again, this can only be achieved through experience.

Another important aspect of any business is proper record keeping and performance evaluation. Again, fair warning: if you're not keeping a trade diary that includes all the particulars about when you entered the trade, how many contracts or shares you bought, the reason for entering the trade and the outcome of the trade, you're setting yourself up for failure. It's also extremely helpful to make notes about your psychological and physical state as you enter trades; that is to say, are you refreshed, are you tired, are you in an upbeat mood, are you concerned or in a pessimistic mood? All these factors should be carefully noted.

Later, as you go back over your trading diary and evaluate performance, you may notice that there are certain conditions under which you simply should not be trading. This information is invaluable. You may also find that there are certain trading intervals and types of trades that you do better at than others. This should also shape your trading plan. You may also find that you do better with some trading vehicles than with others. Some people are naturals at stock picks; others do better with options. Or you may be a futures or a forex kind of person.

Trading is a very difficult profession because you're constantly dealing with a large number of unknowns. Dealing with conflicting and contradictory information is inherently stressful. The more you can do to minimize your stress, the higher your chance of succeeding before you're inclined to give up, or before you lose your trading account.

Another thing to keep in mind is that trading can be a very solitary activity. You may want to find a select group of other traders to either physically or, more likely, virtually meet over the internet. This should be a group you feel comfortable with bouncing ideas around and with whom you can generally develop camaraderie. Being a member of such a group helps tremendously with maintaining your perspective and making sure you don't get lost in a funk. Keep in mind that we are indeed social beings and that working alone may not be good for your mental health.

If you keep the foregoing tips in mind as you begin your trading career, the chances of being successful in it increase immeasurably. You need all the advantages you can get when you start trading so you have the highest chance of succeeding.

However, the rewards of being a successful trader are what make it all worthwhile. You will have the flexibility of working from whatever location you choose as long as it's conducive to a trading mindset. This can make trading a dream of a profession. Paradoxically, you can gain security by trading on the uncertainty of others.

Best of luck in your chosen career of being a trader.