Why am I trading? This is not a trivial question to ask; and you must answer it honestly. Are you trading to make money? Or are you trading for the thrill? In other words, are you trading like an investor or like a gambler?
- What are my trading goals? Again, not a trivial question. Are you trying to gain a few dollars for extra spending money? Trying to fund your retirement? Trade for a living? Or are you trying to amass a fortune and retire early to a life of luxury? How you answer this question will identify the level of risk that you will have to endure.
- What is the size of my trading account? An obvious question.
- What is my skill level? Be honest.
- What is my tolerance for risk? And does that tolerance bear any relation to my skill level? It’s no good having a high tolerance for risk if your skills are inadequate.
- What must I do to improve my skill level?
- If my skill level is low, what trading size can I use to ensure that a single bad decision will not wipe me out? Preserving capital and staying in the game long enough to LTP good trading practices is crucial.
- What is my preferred trading instrument and have I familiarized myself with the behavior, range and velocity of that instrument? Some trades, like bonds and the ETF’s can move at a glacial pace.
- What indicators will I use to identify my entries and exits? Here, “the more, the merrier” may not be the wisest choice. Remember, there can be paralysis by (over)analysis.
- Where will I place my initial stop; and how will I manage them? You may have a trailing stop strategy, or you may plan to just exit when your indicators say, “Get out!”
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Archives of “tolerance” tag
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Why am I trading? This is not a trivial question to ask; and you must answer it honestly. Are you trading to make money? Or are you trading for the thrill? In other words, are you trading like an investor or like a gambler?Trading Wisdom
If we want to be successful as traders it is crucial that we have great filters. We must filter out all the noise that separates us from the actual price action. In the end it is just us versus the market. We need to seek to learn how to trade from others and not look for trades. We have to play a lone hand because we have our own tolerance for pain, our own goals, and we should have our own trading plan with a robust methodology. Others do not know our time frame and we do not know theirs. Their position sizing may be ten times what ours is.
Before we trade we should have a watch list, a risk percent per trade, a methodology, and a trading plan. We should be running our trading like a business not a casino. Information and opinions can bias our trading. Be very careful about the information that you let into your mind. You should attempt to trade as close to your system and methodology as possible without allowing anyone’s opinions our thoughts to come between you and the charts. Actual price action is the king everyone’s opinions are just that, opinions. (more…)
Trading Thought
| Know what your tolerance for risk is.Traders who are able to make smart decisions can beat the market. However, the greatest hurdle to doing so is overcoming the emotional traps that cause traders to make bad decisions.The reason we succumb to our emotions is because we are afraid of losing. It is the risk we take that creates emotion; take too much risk and you are likely to make bad decisions.Therefore, you need to know what your limits are. What dollar amount of risk causes you anxiety? If you can not make a trade with out fear then you are taking too much risk. For some, that means never trading since they simply can not handle the risk of financial loss. However, over time and with success you will begin to build up your tolerance for risk, just take it one step at a time. |