Why it is important to have a trading plan
There are no perfect ingredients to make the perfect trader. All we know is that there are key facts that we must abide by in order to be prepared, efficient and cautious when trading with our real funds.
Even the most educated of traders sometimes can fall victim to their own spontaneous decisions, because after all, we are human, and we succumb to our feelings the majority of the times - especially when it comes to risking our own money!
So what are some of the best practices we can adopt to stay on the better side of trading?
Be practical. Look at the bigger picture and try to make connections between news events in order to start recognising trading opportunities when they arise.
Analyse logically. Once you start to base your analysis on logical thinking, making sound trading decisions will come second nature!
Don't trade just to trade. The market is volatile and we can only trade what is presented in front of us. Some days we may be able to open several trades, and then we may not be able to place a trade for two weeks. The best practice here is be patient and wait for positions that correlate with your strategy, rather than opening random anomaly trades which will not benefit you in the long-run.
Understand your mistakes. Even the most experienced trader makes mistakes so it is important to be able to understand the logic behind these mistakes. Common trading mistakes include; trading on numerous markets, inconsistent trading sizes and over-leveraging.
Set limitations. Make sure that you create a list of rules and stick to them. Try to understand your risk-reward ratio for when you are opening and trade and make sure you exit that trade according to those ratios. Setting up a profit target and stop loss can help take emotion out of the trading process.
Manage your risk. It's common sense to never invest more than you can afford to lose, and that's exactly what you should do. Many traders get carried away and believe that when they close several winning trades, their luck will last forever. This is never the case! Be wise, and know when you have reached your limits. Take care of your funds.
Keep it simple. Don't over complicate your trading plan. Using endless amounts of indicators and other tools will throw you off the course you originally planned out, more numbers means more complications which includes having too many open trades at the same time.
Trailing stop. No one wants a winning trade to become a losing trade so always keep a trailing stop loss!
Keep learning. It's imperative to keep learning as a trader, educate yourself and do a post-trade analysis. By keeping a trading journal you can analyse what works for you and what doesn't.
The above are not all the answers to a healthy trading approach but they are a good place to start. Whatever your trading status, just be sure to keep a positive and focused mind. Trading is not easy, but learning how to control your emotions can be done with a little self discipline and determination!
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Sources:
https://medium.com/@BeSensibull/the-dos-and-donts-of-great-trading-435a23a8ff5f
https://www.dailyfx.com/education/trading-discipline/trading-psychology.html
https://www.investopedia.com/articles/trading/02/110502.asp
https://www.investopedia.com/terms/t/trading-psychology.asp
This article was submitted by ForexTB.
