Find Your Edge
So you have a trading system but do you know what makes it profitable? Have you any idea of its strike rate and can you trust it? A question many traders cannot answer. A simple system that gives you 51 winners versus 49 losers from every hundred will make you money if you know how to manage it correctly, but there is an element of trust needed. Before you trade your system you need to properly analyse it to find out how often it wins and how often it loses. How big are the wins compared to the losses? How big is the drawdown? After answering these questions you will gain an element of trust in your system and be able to ride out the lean times to harness the gains from the bigger picture.
Stick To A Plan
If you are in a hurry to get somewhere you wouldn’t take the long route would you? Would you drive 1000 kilometers without consulting a map? I would think not. Much is the same with trading. Your system (or edge) is your plan and when travelling to your destination you must stick to the highway. Never stray from the plan and ignore any signs that tempt you to try a different route.
Don’t Spend What You Can’t Afford
Often a big mistake a losing trader will make is to trade too heavy in one single position. To lose a large percentage of a trading account on one trade is suicide and in doing so you are giving yourself a mountain to climb whilst clawing yourself back to breakeven. Not even mentioning the psychological damage it will do. Trade small in comparison to your trading account, the market will always be there tomorrow and trades will come each and every day.
Focus On Points Not Profit
We are all in this for one reason and that’s to make money, but money is also the root of all evil. By focusing your mind on percentages of your trading account, counting the points won (not dollars) and risk reward ratios eventually the money will stack up on its own. Thinking “I lost 20 points on that trade” rather than “I lost $200 on that trade” will also help you to stay out of the markets emotional games.
Learn From Mistakes
They say the clever people in this world are the ones who can instantly learn from their mistakes. This is also true when trading. If you repeat the same mistakes over and over its possible you may not have the correct frame of mind needed to become successful in this game. Learn and never look back. If you stray from your plan and lose try to understand the mistake and reinforce to yourself that it will never happen again.
Less Is More
How much time can you commit to this? This is a question that should be answered well before you select a system. Trade when you feel happy, trade when the markets open, take your money and leave. Often no position is the best position. Overtrading is one of the biggest downfalls of any new trader and will most likely lead to your account (and mind) burning out. Takes some trades and go do something else to stay fresh.
Live Your Life
Last but not least never forget what you are doing this for. You are doing this to give yourself a better life and more money. Enjoy it, take some time to live your life and don’t get caught up in the trap of being addicted to the markets.