Here are some more trading tips that you may find useful
Implement risk management
Use stop losses and limits – these take the emotion out of closing a trade and reduce the risk of unnecessary losses as a result of attachment to a position.
Traders allow losses to grow as their emotional attachment makes them hope the price will reverse
- The hardest thing a trader has to do is manually close a losing trade; placing a stop loss order at the same time you make a trade will avoid having to do this.
- Traders often complain when their stops hit then the price reverses; never cancel a stop loss order after you have placed it. You placed the stop when you were calm before you entered the trade; now you are stressed because the trade is moving against you
Trust your original judgment!
Treat trading as a business not a hobby
You wouldn’t invest $10,000 in a business enterprise on impulse – so don’t do it when trading!
Make sure to make time for researching the markets when you are not trading
An informed trade is always a better option than an impulsive trade
Patience is a virtue in trading; it is different to not trade through fear
- …waiting for the price to hit your indicators before trading
- …waiting hours if necessary for the correct time to enter the market. Trading profitably is what matters, not the number of trades per day
- …not jumping in and trading just because you see the price moving or you are bored
- …not trading on a tip. You will find wildly divergent opinions even among so-called experts. Do your own research before you trade
Standing aside is a valid trading decision
- Overtrading is a common mistake made by new traders as they try and catch every small price move
- The price moves down so they sell, it moves up so they buy, in doing so they are always chasing the market and usually losing.
Learn to anticipate price moves, not just follow them
- Short term trading is highly intensive and requires lots of discipline and concentration so make sure you are ready for this level of intensity and can trade without distractions
- Longer term trades do not have to be monitored constantly and are more appropriate for traders with other commitments
Coping with losing trades
Learn to love your losses
This is a term heard often in the trading world, and if you don’t learn to embrace your losses, your trading career will probably be short lived.
So, what exactly does “learn to love your losses” mean?
It means you should understand why you made a losing trade;
- Did you misread your indicators?
- Did you fail to anticipate the release of an important piece of economic data?
Some losing trades are not your fault; for example, an unpredictable event such as a terrorist attack could move the market, but…
The majority of losing trades are because the trader made an impulsive decision
- To lessen the psychological impact of a loss, redefine a loss from being a failure, to being an opportunity to learn
- Do not blame the markets for your losses, the markets don’t owe you anything - look at your strategy and adjust accordingly
Trade based on what the market is doing rather than what you think it should be doing. Trends and market conditions can change; make sure your strategy changes with it.
Cut your losers and run your winners
- Don’t take profits too early through fear. Fear causes the mind to question and react while the trade is still “safe” and in profit, no matter how small.
- Conversely, don’t let a winning trade turn into a loser
Set yourself rules to follow; close a trade if the market retraces 20% from your profit target. This allows you to make sure that your emotions don't get out of hand when trading
- Except in special circumstances, get in the habit of taking your profit “too soon”
- Don't torment yourself if a trade continues not to move in your favour. A common mistake is to close a position that is in profit and keep one that shows a loss.
Building your account equity
Don’t try to make your fortune in a single trade – you will never be satisfied if you have unrealistic expectations
- Aim to build your account steadily
5% per day is a great return
- Remember you will have periods of equity draw downs or sideways movement
If you have 3 losing days in a row, take a step back from trading for at least a day to collect yourself.
Use this time to reassess your strategy and analyse the market
To summarise, don’t underestimate the power of your emotions…
TAKE CONTROL OF YOUR TRADING, DON'T LET TRADING TAKE CONTROL OF YOU