Have a plan for every trade and ask yourself

  • What is my criteria for entering this position? – Ideally this has been tested or proven over time.
  • How much I’m I willing to risk in order to be right? – This will help you determine the appropriate position size, and let you be comfortable if you need to take a loss. 
  • When will I take profits? – Yes you can let your profits run, but there’s nothing worse that letting a nice winning position turn around into a loser. Fixed exits can be very effective and depending on the strategy, and it might be more effective to take profits at times.
  • How will I determine when the conditions for entering a trade have changed? – Regardless of whether you use technical or fundamental analysis, it’s important to know when your reasons for entering a trade are no longer valid.
  • What is my time horizon? – How long do you expect a trade to last? This can give you a basis for closing a position if the move that you expected doesn’t occur. This will also help ensure that trading capital isn’t tied up when it can be used on better opportunities.
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