In order to manage your mindset effectively when trading, you need to create a documented plan that you can review regularly to stay focused on your goal of trading success. By writing down your plan, you put yourself in the top 3% of individuals who have written goals and plans, giving you an immediate edge on most traders. Make sure you have answered questions:
1) How will you enter trades? The basic is too good entries is putting on trades where there should be relatively low risk compared to the much higher reward. You should shortlist a clear catalyst for the expected stock move.
2) How will you exit trades? You should keep an initial stop point for your trade, at the point where the trend is being risky or invalidated. You will also define a 'trailing stop' technique to protect your profits.
3) What type of orders will you use to enter and exit? When entering, I like to use limit orders, which are good for the day only, while exits are often market orders. Why? Because limit orders permit me to define my risk and benefited clearly on the entry of a trade, while when I need to get out, market permits immediate exit compared to the risk of missing my exit with a limit order.
4) There is definite amount target you need to trade successfully? There are economies of scale as you raise the amount of capital you trade with. Costs related to commissions, quote systems, and equipment begin to decline as the ratio of capital invested goes up.
5) What percentage of your capital will you invest in each trade? The amount of capital I typically use is 10% per trade in my own accounts. I know traders who commit anywhere from 5% of their account per trade to 20% of their account per trade. Your objective should be to keep portfolio risk per trade at less than 2% per trade. For example, if you invest 20% of your portfolio in a trade, a 10% loss on that position would lead to a 2% loss on your portfolio.
6) How many positions will you focus on at once? I like to concentrate my portfolio on my best quotation plus I like to stay focused on how each stock is behaving. If my portfolio is too big (I'd say more than seven stocks is too many to focus on), then I will lose focus and indefinitely miss an exit on a trade that I should have previously exited. you can get Forex Trading Tips from Advisor.
7) What will your Trading Journal goes like? In my Trading Journal, I note pen down observations, particularly related to my ability to execute my trading plan. I also need to do a post-trade analysis every month. I note what I did right and wrong, and seek to learn from what goes wrong to minimize future errors in similar circumstances, while also looking for winning patterns where I seek to repeat big successes.
8) What is your daily Position Review process? I suggest you have an end-of-day routine to close your day. Review your shares, and analyze if you followed your plan. Keep a log of all your trades, and make a mark on each position.
9) What is your Preparation process before trading? You need defined time to prepare for the next trading day and build up your trading confidence. I prepare after the close for the next day's trading, which assigns me to formulate a plan of action BEFORE I get into the real battle. This allows you to trade proactive instead of reactive.
10) What broker will you use? Most traders mistakenly think that commissions are the number most effective factor they can control. In reality, commissions are a small cost compared to the broker's effectiveness at achieving your trade. Your focus should be finding a broker who gets you accurate and fair execution of your orders.
Once you have predefined these factors of your trading plan, you are in a great position to have a strategy to control your emotions when trading. Make sure to review your plan on a regular basis to create effective trading habits.
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