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“Only execute the trade when the chart matches your plan, if it doesn’t – no trade.” – Gavin Knoesen
Intelligent speculation includes some salient aspects like opening of trades, trade management, emotions control and strategy optimization. There is no way around the fact that these salient aspects can never be avoided by active traders, but our attitudes towards them can make a big difference between good and bad trading habits. These are the questions traders need to ask themselves often and often:
Did I open my trade according to my entry criteria?
It’s imperative that you open a trade according to strict entry criteria. Trading discipline entails your refusal to trade a setup that doesn’t match your entry criteria; no matter how attractive the setup is. Trades shouldn’t be opened randomly. No matter what the news shows or how attractive the markets are, we won’t open any trades until our setups appear. You make mistakes only when you don’t follow your trading rules. A loss trade isn’t a mistake, provided that you opened the trade according to your entry rules. A trade that’s opened in violation of your entry rules is a mistake – whether it results in profits or loss.
Did I follow my trade management plan when the trade was open? If not, why?
This is one of the reasons why many traders find trading difficult: they’re unable to stick to their trading plans after they enter the market. A swing trader opens a trade and quickly closes it after about a 10-pip gain, for the fear of a price reversal. An intraday trader decides to run a negative position for several more days with, the hope that the price could turn in her/his favor. These attitudes are bad. You need to know that once you enter the market – irrespective of how great your signal is – trading becomes managerial. It’s your trade management and exit techniques that’ll ultimately determine your long-term success, and this has nothing to do with your trading accuracy. When you’ve open positions, never forget to stick to your breakeven rule (if any), trailing stop rule (if any), trading duration rule and exit rules. Anyone who constantly violates her/his trading management rules needs psychological help.
What was my reaction after the trade was closed?
If you traded flawlessly, the outcome didn’t matter. Sane traders gauge their success by how flawlessly they execute their trades, not by how much they make or lose. If the AUDJPY moves significantly in your favor, it makes little difference than when it moves significantly against you. A significant movement in the market is a significant movement. If the AUDJPY moves significantly against you, it makes little difference than when it moves significantly in your favor. An adverse movement has negligible effect on good risk managers; whereas a favorable movement has satisfactory effect on their portfolios. Traders occasionally sustain negativity but they don’t want to take responsibility for that, they think they’ve been treated unfairly when the markets simply move without having anyone in mind. We must take responsibility when we make a profit and when we make a loss.
Is there any way I can optimize my trading strategy?
Permanently victorious traders use conservative trading methods for long-term objectives. It doesn’t matter whether the methods are boring or not. Anyone looking for thrill may try sky-diving or bungee jumping. The real trading breakthrough has to do with finding a good setup rule and trading it constantly. A negative expectancy system needs improvement, but a positive expectancy system doesn’t need that. This doesn’t mean that the positive expectancy system can’t have losing streaks. During a losing streak which may be normally protracted, it’s sad that an average trade abandons a good system when it’s on the brink of a winning streak. The newly found system can either start losing or winning right away; only to later begin to experience an opposite streak. You oughtn’t to be discouraged even if you strategy is no longer interesting. Stick to it as long as it helps you make money. And don’t forget that it’s possible to keep your account safe no matter what the market does.
Conclusion: It’s imperative that you stick to your winning strategy – even if it’s no longer interesting. Your trading strategy mayn’t be interesting, but keep on using it as long as it helps you obtain average winners that are bigger than average losers over a long period of time.
“Many people hold trading in the same regard as gambling but it is an unfair comparison. Trading is not gambling unless you are trading blindly, randomly, without adhering to a trading plan and completely ignoring any risk management.” – Stuart McPhee
Source: Tallinex.com
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