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Which statement best describes a healthy approach to trading methodology?
Explanation
Your trading timeframes should suit your lifestyle and availability
Your risk tolerance is highly personal and dependent on your individual circumstances
Your trading strategy must be one that gives you confidence to make good decisions
What is considered a good minimum risk/reward ratio for trades?
Explanation
A trader who achieves a risk/reward ratio of 2:1 only needs to be right ±34% of the time to achieve breakeven, whereas with a trader using a low risk/reward ratio of say 1:1 must be right 50% of the time just to achieve breakeven
When experiencing a drawdown, what should be your first action?
Explanation
Taking a break from trading prevents a normal drawdown from becoming a damaging one by offering a chance to get some mental clarity and to identify the root causes of the losses.
What is the primary purpose of a trading journal?
Explanation
A journal helps you identify your strengths and recognise your weaknesses, track important trade details, maintain consistency in your trading strategy and separate the process of trading from trading outcomes.
How should you handle a winning streak?
Explanation
Winning streaks can lead to overconfidence, which can lead to losses. It’s important to stick to your trading plan even more diligently following a winning streak.
What is the most effective way to build trading confidence?
Explanation
Develop a trading methodology suited to your personality and circumstances, have strong risk management strategies in place, learn to focus on the process and not the results, establish consistent trading habits, trade the appropriate position sizes and h
When should you make major changes to your trading strategy?
Explanation
Your trading strategy should only be changed at a predetermined evaluation period after you’ve done a complete analysis of your trading journal for the period or when market conditions shift.
What is the best approach to position sizing?
Explanation
Your position sizes should be based on your risk tolerance, accounting for both the risk of the position, as well as the risk to your total account. Don’t forget to account for correlation between positions and to calculate your aggregate risk across all
How many markets should a trader typically focus on?
Explanation
Focusing on finding the best opportunities in a narrowed universe of markets will give you more confidence when it comes time to act. Not every market moves the same, so knowing the nuances of how a market trades will help you act more decisively.
What is the most important factor in long-term trading success?
Explanation
Consistent application of a proven process builds pattern recognition skills, separates the process from outcomes, enables meaningful evaluation, helps you manage your emotions and prevents self-sabotage.
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