|Far too often, newer traders are overly anxious to trade. For many, there's an adrenaline rush attached to the process of "being in a trade". There's tension or exhilaration and it's quite palpable. As an author and market advisor, I've noticed that many of my clients are always raring to get started and make that first trade. My council is always "slow down, there's plenty of time to make lots of money". That sobers some, but not all. |
This may be a danger sign that says you're not treating trading like a business. You're seeing it as a amusement park or an extreme sport. Being in a trade provides the new trader with numerous opportunities to experience this high, and every trade made serves to feed the rush.
|However, the more you trade by reacting to every shift in the market, the higher the likelihood of failure. Emotion can often cloud the thought process; each time you have to make an unforeseen adjustment to an existing trade, the likelihood of making the right choice is 1 out of 2. When you have to make two decisions, the likelihood of being right on both occasions is 1 out of 2 TIMES 1 out of 2, or 1 out of 4. Three chances to react and the odds become 1 out of 8, and the odds keep going up. |
The best way to avoid being in a reactive mode is by having a plan for each trade and sticking to it. A basic trading plan, aside from having other aspects, answers three questions:
1. When is my point of entry into the trade?
2. What if I'm wrong?
3. What if I'm right?
|You need to define at what price point the trade is attractive enough for you to make a commitment. Once done, at what point will you admit that this trade hasn't gone your way, cut your losses and exit. This should be decided before you take the trade. Take that amount of money and translate it into a price. That's your initial stop-loss. |
Finally, what do you do if the trade immediately goes exactly as you would have hoped? There's no easy answer to this and much of it is a matter of personal style. For myself, I immediately adjust my stop-loss up to breakeven. This way, if the market decides to reverse itself while I'm busy patting myself on the back, I can still leave the trade without a loss.
|As the trade continues to improve, the trailing stop should be adjusted upward by a clear and defined method. This, too, is a component of your overall plan. |
With these three questions answered before the trade is ever initiated, you'll find you don't have to react to the market's every up and down because everything has already been programmed into your trading plan. That makes you the initiator, not the reactor, in the process.
|However, being the initiator eliminates much of the excitement, the tension, the anxiety and the exhilaration of trading. That makes sound trading a lot duller than some people care to have it, but it also brings it a lot closer into the business realm.|
|Company:||Qi2 Technologies LLC|
|Address:||4800 Baseline Road, Suites E104-370|
|Boulder, CO 80303|
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