The complete guide to professional trading strategies will reveal how to trade against the crowd and become a professional trader. The most efficient professional trading techniques used by hedge fund traders, bank traders, and prop traders will be outlined through this guide. By taking a look at how the biggest hedge funds make trading decisions, you can apply these same principles to your own portfolio.
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Trading is more than just slapping on a few keyboards or using your favorite support and resistance indicator. Professional traders do more than just that as they well-know this business requires time, effort, and the right professional trading tools to succeed.
There are no shortcuts if you want to trade like a professional trader.
The good news is that these professional trading techniques can be learned by anyone willing to put in the time. You don’t need to have a special talent to become a professional trader, but you need to have the right mindset and an actually proven edge.
Becoming a Professional Trader
Professional traders aren’t born, they are made!
Legendary trader Richard Dennis, who turned $1,600 into a $200 million fortune has successfully taught a group of traders known as The Turtles. With the Turtle experiment, Richard Dennis proved that anyone can learn how to be a professional trader.
Most hedge fund managers, bank traders, and institutional traders learned to trade profitably from another successful trader. There are a few exceptions that are self-taught professional traders, but these only confirm the rule.
Learning to trade like a professional trader doesn’t mean working for a financial institution or trading large amounts of money. A professional trader is someone who over a period of time, has proven he or she can beat the market on a consistent basis.
Secondly, you need the winning mindset of a professional trader.
How to think and trade like a pro trader? You may want to check out this trading mindset PDF.
Here are a few characteristics of the mindset of a winning trader:
- Pro traders are comfortable taking calculated risks.
- Pro traders are self-disciplined traders.
- Pro traders know how to leave their own personal opinions at the door.
- Pro traders don’t take losing trades personally.
We can definitely add more things into the above list, but most often these are the things amateur traders can’t overcome.
Let’s see some of the most popular professional trading techniques in action.
How To Trade Like a Professional Trader?
According to Brett Steenbarger, Ph.D. author of The Psychology of Trading and a performance coach every elite trader can be characterized through 6 qualities. You can learn how professional traders trade by emulating these traits:
- Ability to sustain focus (pro traders are either fast thinkers or deep thinkers).
- Originality and creativity (while pro traders may use some well-known trading strategies, there is a uniqueness to how they execute that strategy).
- All pro traders have learned from a mentor or other professional traders.
- Emotional resilience (treating losses as a learning opportunity).
- Attention to the details.
- Always working to become better at this game.
Professional traders are able to recognize what are their trading strengths and weakness are and then capitalize on those strengths. This is a concept known as "exploiting your edge." In other words, a pro trader is doing more of what works and less of what doesn’t work.
For this, we’re going to assume that pro trader A from hedge fund ABC has identified that most of his profits come from scalping the stock opening bell. On the other hand, he also noticed that he is doing a terrible job trading breakouts.
Now, a professional trader will maximize his strengths by trading bigger sizes on the opening bell. And, at the same time, he will avoid trading breakouts.
Other professional trading techniques used by many pro traders are to take one good trade at a time.
While all the tools that the professional trader uses are equally important if we were to pick just one rule, this would be:
One good trade at a time followed by another one good trade.
In his book “One Good Trade – Inside the Highly Competitive World of Proprietary Trading,” Mike Bellafiore explains the characteristics of a good trade.
According to the book, one good trade is a trade that strictly follows your setups and your plan.
If you followed your plan, whether the trade yields you a profit or a loss, then that’s one good trade.
In other words, the inner workings of a good trade follow the trading rules you have set in place.
Of course, if you don’t have an edge, you can follow your trading rule as much as you want; they will produce the same type of results.
So, the first thing you need is a profitable trade setup that has been proven to work. If you are new to trading, you might want to consider beginning by trading on paper using platforms such as MetaTrader4.
Tools That Professional Traders Use
The reality is that professional traders don’t gain their edge from special tools or special technical indicators. Most of the professional traders use the same trading tools that are available to retail traders as well.
So, if there are no professional trading indicators how come a professional trader can make money using the same trading tools as you do, but you still can’t seem to find any type of success?
Well, it all comes down to how you use professional trading tools.
A professional trader can take the Relative Strength Index (RSI) indicator and use it in a very unique way. This type of unconventional thinking is another trait of a professional trader.
Check out some professional trading techniques that have an unorthodox approach:
- Best Average True Range Forex – An Unorthodox Approach
- How to Trade The London Breakout Strategy With One Trick
- Breakout Trading Strategy Used by Professional Traders
- Hedge Fund Strategies and Tools Used on Wall Street
Professional Trading Strategies
Note* Some of the professional trading strategies outlined through this section can be found in the book “Street Smart” by Linda Bradford Raschke and Laurence Connors.
Moving forward, we’re going to share 3 professional trading strategies that work and give you some hints to pick the one that fits you.
Here is the list of what we’re going to write:
- 80-20 strategy for day trading like a pro,
- The Holy Grail trading strategy (suitable for any market and TF).
- Three Little Indians trading strategy (catching trend reversals like a pro).
The 80 – 20 Trading Strategy
The basic idea behind this pro trading strategy is around a simple chart price formation. Particularly, a candlestick bar with a long body and small wicks. Usually, these types of candlestick patterns signal a market reversal. However, there are some price characteristics that need to confirm the reversal signal.
Here are the pro rules:
- The body of the candle must take at least 80% of the total candlestick size.
- The wicks of the candle must constitute less than 20% (ideally 10% on each side).
- Today candle must open 5-15 ticks below (above) the momentum candle (this is meant as a guideline).
- Once the market breaks above the momentum candle low you buy.
- Stop-loss can be placed below today’s candle low.
- Take quick profits as this is a scalping strategy (don’t expect large profits from this chart pattern).
Note* This strategy works best in the futures market, but if you’re a smart trader you can work out some variation of it to make it work on your favorite market be it stocks, forex, or cryptocurrencies.
Here is an example of a sell signal:
Next, we’re going to share with you an indicator-based strategy. This will prove to you that you can trade successfully even with indicators not just price action.
The Holy Grail Trading Strategy
Now, the name of this trading strategy may be controversial, but it’s a simple strategy that everyone can use. The professional trading tools you need to use are:
- Average Directional Index (ADX) indicator
- 20-period moving average
The Holy Grail trading rules are simple to follow
See the rules for buy signals:
- ADX must break above 30 and rising.
- Wait for price to retest the 20-period moving average (this will be accompanied by a declining ADX, which must hold above the 30 level).
- After the price touches the 20-period moving average place a buy order above the high of the candle.
- After your order is filled, place a protective stop-loss order below the newly formed swing low.
- Trail your SL to look in profits or take profits at the most recent swing high.
Here is an example that will highlight how this strategy works in practice.
See the chart below:
Furthermore, we’re going to outline one of the most profitable trend reversal patterns.
Three Little Indians Trading Strategy
Again, this strategy doesn’t require any professional trading indicators.
The Three Little Indians trading strategy is a pure price action trading strategy that has the potential to reward us instantly. The rules for this setup are pretty simple (sell signals):
- First, you need three consecutive symmetrical peaks (swing highs).
- The time that passes between the development of each swing high is more or less the same.
- Enter a short position once the market turns below the 20% range of the second peak.
- Place your protective stop loss above the newly formed swing high.
Basically, we’re trying to anticipate when the third swing high will get formed. If we wait too long, our profit margins will shrink. Read more about swing trading in forex here.
Note* this chart pattern works on the daily chart as much as it works on the lower time frame. We like to trade the Three Little Indians trading strategy on the 5-minute chart.
Now, here is a real trade example.
Final Words – Professional Trading Techniques
In summary, becoming a professional trader involves the same probabilities as with any other performance activity. While you can employ some of the best professional trading techniques, without the proper mindset you’re still doomed to fail.
The two most important things you need to keep in mind are to learn to identify your strength and maximize those trades and secondly take one good trade at a time.
Here is a short recap of the 3 professional trading strategies outlined throughout this guide:
- 80-20 trading strategy based on a single candlestick formation.
- The Holy Grail trading strategy is the right way to use indicators.
- The Three Little Indians is teaching you how professional traders spot trend reversals.
Some of the best traders in the world are successful because they have learned to trade only one strategy. Remember that many are called, but few are chosen. If you enjoyed this article, be sure to read our Professional Forex Trading Guide.
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