Trading Strategy

Preparation

If you have a written trading or investment plan, congratulations! You are in the minority, that's because most of the traders out there trade without a plan. While it is still not an absolute guarantee of success, you have eliminated one major roadblock holding you from being successful in trading. Trading is a business, so you have to treat it as such if you want to succeed in it. Reading some books, browsing online for tips on trading, buying a charting program, opening a brokerage account and starting to trade do not contribute to a solid business plan - it is a recipe for disaster. "If you don't follow a written trading plan, you court disaster every time you enter the market".

Execution

A plan should be written in stone while you are trading, but subject to re-evaluation once the market has closed. It changes with market conditions and adjusts as the trader's skill level improves. Trader should write his or her own plan, taking into account personal trading styles and goals. There is no way to guarantee that a trade will make money. Professional traders know before they enter a trade that the odds are in their favor or they wouldn't be there. By letting his or her profits ride and cutting losses short, a trader may lose some battles, but he or she will win the war. Most traders and investors do the opposite, which is why they never make money.

Always remember these points...

  1. To overcome these problems you need to develop a disciplined trading system for yourself. A system strictly followed avoids emotion because like the trained soldier you have already done all the 'thinking' before the problems arrive. This should then force you to act correctly while under trading stress. Most traders will go into the market with great optimism and fail to have any plan because it does not enter their mind that they may be wrong. If they thought that, they would not be in the market in the first place. What do you intend to do if you are wrong? You are going to create problems for yourself unless you have a clear plan in mind. Best of all write it all down before you trade! It's not wrong to be wrong, but it is wrong not to recognize it immediately and to then cover your position.

  2. Never trade unless you have plan ready and waiting to be activated without hesitation. This is a vital part of a good trading system. All this preparation is difficult because you are fighting the urge to trade, before you miss out on everything. If you plan for a failure before each trade, you will be surprised how successful you can become. As you have been reading this page you have probably been nodding your head with agreement and perhaps thinking about your own refinements, but you will still go out and trade on impulse! It is like reading a health magazine, yes you agree with everything they are writing about and at that moment you are determined to get your eating act together, but at the end of the day you have simply carried on as usual.