This is where all the thinking in trading comes into play, while writing your trading plan. Once you have created your rules to trade by, you become more systematic and logical in your thought process for executing successful trades. Your personal trading plan will include every step of the trade from identifying to exiting your trade. By having your setup written down in your plan, you will have a better chance of using patience and discipline to wait for your entry. Otherwise, you will use emotions to enter trades and we all know where that will get you. After entering your trade, you will have more confidence because you have back-tested your strategy and know that it has a successful track record and will give you that extra edge over your competition. Identifying your entry strategy will help you execute your strategy in an efficient manner with no hesitation. There will be no guessing or wondering what to do once your setup is identified, you just click and go. Your risk management is also pre-defined so your initial protective stop is set on entry and you know when you will be moving your protective stop to breakeven after the market moves in your direction by a certain amount. Of course, our price target is also known in advance and how we will exit the market at this target. Will we have a set price target, a trailing stop, a time stop, etc.?
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rssTrading To Win
One of the easiest mistakes any trader can make is not a ‘trading’ mistake at all. Rather, the mistake is complacency with his or her trading skills and knowledge. Unfortunately, trading is not like riding a bike – you can (and will) forget how. Obviously you’ll always know how to enter orders, but the efficiency and accuracy of your trading will diminish without constant renewal of your trading mindset.
The reason that most traders don’t undergo psychological self-development is a lack of time, and that’s understandable. However, a good book, DVD or Coaching Class is actually an investment in yourself, and ultimately an investment in your bottom line. Today as a primer, and a challenge, I’d like to review some self-development concepts that Ari Kiev explores in his book ‘Trading To Win, The Psychology Of Managing The Markets‘. This in no way is a substitute for his excellent book, but they are still useful ideas even in this abbreviated form. None of them are going to be new to you, but all of them will be valuable to you.
1. Plan the entire trade before you enter the trade. Have an entry strategy, and an exit point (both a winning exit point and a non-winning exit point). This will inherently force you to look at your risk/reward ratio. Write these entries and exits down in a journal.
2. Eliminate distractions. It’s difficult enough to find trading time at all if it’s not your regular job. If you’re a part-time trader who trades at work between meetings and phone calls, think about this: there are full-time professional traders who are concentrating on nothing other than taking your money. It’s not that they’re better or smarter than you – they just have the time to focus. If you must trade, set aside blocks of time to study or trade without distraction. Or it may be more feasible to do your trading on an end-of day basis, meaning you
place your orders and do your ‘homework’ the night before when you can
focus on it.
3. Choose a method or a small group of methods, and stick to them. Far too often we see a trader adopt a new indicator or signal only to see it backfire. Become a master of your favorite signals, rather than a slave to any and every signal. Understand that an indicator will fail sometimes. That’s ok. The sizable winning trades should more than offset the small losing trades initiated by an errant signal. This trading method is designed to eliminate the emotional bias of trading.
4. Choosing not to trade can also be a prudent choice. You’ll frequently hear ‘don’t fight the tape’. The same idea also applies to a flat market – you can’t make stocks do something they’re just not going to do. Wait for good entries into a developing trend rather than force a bad entry into an unclear trend. (more…)