Trading is not just a question of deciding market direction. There are many basic parameters that one should set regardless of the method or system, used, for example:
- are you looking to make a regular income from trading or capital building (or both)?
- what markets are you going to concentrate on?
- what time horizons suit your circumstances and plans?
- how much captital are you putting into your trading?
- are you looking to trade manually or via an EA?
- are you going to base your trading decisions on technical analysis or fundamentals or some kind of mixture?
Once you have clarified and settled these kinds of issues then you need to form your trading plan that meets these criteria. This plan will include your rules for trade entries and exits. But one of the most important components of your trading plan will be your risk/money management rules.
Trading is based on taking positions that expose you to risk. You need to know how much risk you are prepared to take on each position - both in absolute terms and relative to your profit targets and your equity level.
But whether each individual trade wins or loses is not relevant (except for analysis purposes). It is your overall performance that counts. If you have a method that generally produces 50% wins and 50% losses and your risk/reward parameter is approx 1:2 then you will still make a net profit over time.
This is one reason why the claim, "you never go broke by taking a profit", is misleading and even dangerous. If one continually only focuses on one trade and takes a profit simply because it is in the "green" then this will distort your overall risk/reward parameters in the longer termand will soon be wiped out by a bigger losses.
Personally, I think that these risk/equity control issues are far more important that just getting a good entry.
Regarding losses, these are an integral and intrinsic part of the nature of trading as a business. It is like:
" looks like it will do this - Yes! so let's stick with it / No! lets get out quick!"
Losses are normal but it is always important to analyse them:
- was it in line with my trading method and parameters? Yes - acceptable loss / No - bad loss.
We all have bad losses from time to time due to lapses in concentration, spontaneous whims, influence from other people and so on -we need the discipline to cut these out.
Trading is a business, and like other businesses it has its own rules and parameters.