In terms of Trading, one of the most searched topics on google is Option trading strategies. Traders are simply fascinated by Option trading strategies, thinking there is a holy grail out there, to churn profits month after month. I wasn’t spared from it either.
I was lost and confused in my early years of trading. I was trying to learn different trading systems, thinking it will make me a better trader. I would try out a new trading system and made some money at the start.Eventually when the draw down came, I would abandon the system and hop on to the next best thing. Rinse repeat all over again. Thanks to my Trading Guru he showed me the Right Path and helped me to become profitable trader.
Below are the few pointes you can keep in mind
No Plan To Exit Losing Trades
I’ve seen many traders placing trades in the market with only an end point in mind, target profit. This is saying I know the markets will definitely go in my direction and I have no need to worry about a loss.
You put on a long trade and watch price moving in your favor almost immediately, hooray! Damn it feels good, makes you feel like you are in control of everything. Another 35 pips more to profit target!
Then you notice your trade starts going against you, and you have given back all your profits. You are now in the red. You believe it is a matter of time before it turns in your favor once more. So you hold on to that believe, but the ticker continues to move further against you.
Heck you’re no longer thinking about your target profits now, you simply want to get out at break even, and call it quits! Price slowly creep back in your favor, but not enough to put you in the black. You hold on to the same believe still, as price now shows it is about to reverse.
Your conscious efforts are undermined by strong emotional and subconscious forces. As traders, we need to focus on our actions and results. These don’t lie, yet our minds can. Loss aversion is lessened by practice and seeing with your own eyes that even with lots of losing trades, you can still be profitable. The lottery syndrome is counteracted by evidence and asking yourself how the hunt for a big winner is really going. Finally, knowing you should or shouldn’t do something isn’t enough. You need to actually put that into practice.
Trading is a game of probabilities. This means you always have the possibility of a loss on each trade, so always always have a stop loss in place!
No Trading Plan
A trading plan is to guide your trading towards the right direction. It covers everything from entry, exit, risk management, markets traded, time frame and position sizing. It is your blueprint for success. And no 2 traders will have the same trading plan, due to different risk appetites and personality.
A trading plan is a set of rules, to define your trading activity. The time you sit in front of screen till the close of trade everything should be documented in trading plan. It has your entry,exit, profit booking SL levels and also your psychological strength and weakness. It can be an extremely useful tool to help you focus on planning and executing your trading strategy.
There is no absolute blueprint for the perfect trading plan – every trader is unique, and different styles suit different people – Let me share the universal things which should be included in trading plan.
Most traders enter the trading business with no trading plan. Trading based on gut feel, emotions or no trading plan is pure gambling. When you have no trading plan, you will be trading aimlessly and have no idea which area of your trading needs to be improved on.
There can be many reasons why you are not profitable. It could be discipline issues, psychological factors hurting your trading, or simply having no edge in the markets. Without a trading plan, you will never know what is the cause.
But when you have a trading plan you follow religiously, there will only be 2 outcomes. Whether it made you money or lost you money.
If it made you money, then you may have an edge in the markets. But if it cost you money, it tells you your trading plan needs to be worked on.
In other words a trading plan allows you to filter out what is working and what is not.
Trading is just like any professional career like engineer, doctor or lawyer. It takes years of commitment and effort to get good at it, and you must be willing to learn from your mistakes.
The beautiful thing about learning is that you can profit from the experience of others, to reduce your learning curve.
If you can reduce the number of trading mistakes, then you’d be a step closer to consistent profitability.
So, what do you think is the reason why most traders fail?