Things to do before entering a trade
Not to have an attachment to a trade
The best traders never have an emotional attachment to an idea. You need to be prepared if the trade goes wrong, you will just cut it. You should move on to think about something else. Markets can have random outcomes. Do not have an expectation about the market before entering a trade.
Not to change your stance unnecessarily
Most of the time, we think of changing our position in the market. As traders, our job is not to be right, but our aim is to make money. You need to keep your ego away from your trade. Do not go into the market with the thinking that you are always right.
Focus on here and now
Quick decision making is crucial in trading. Take the decision to trade considering all the information that is front of you. This information should be present with you at the time of the trade.
You need to stop trying to make things go your way in order to prove that you are right. Listen to what the market is telling you now. And then trade based on that. Forget everything that you had thought about it five minutes ago. Remember, your objective is not to prove anything to the market.
Confusion in choosing markets
With so many markets and instruments available today; there are many ways where you can use your strategy. It needs to have proper observation and analysis. Sometimes, trading stock futures may the best trade. Other times, currency markets or options may give you the best trade.
So what to do in these cases is to find the market where there is less risk and highest reward potential.
Point of mistake
Analyse where you might go wrong in the trade before even entering the trade. Start your trade by deciding where the market can go. Also think, at what level that your idea might no longer hold true, whether you would need to make modifications to your stop losses or not. This means there can be a change in your risk management plan.
Willing to take a loss
You need to accept that a trade can be a loser even before entering a trade. You have to be prepared for the worst possible scenario and should be able to deal with it. This will keep you focused on your objective during the entire trading process.
Even though it is always you who are placing trade every time; try to be as mechanical as possible. Take the trade if it satisfies your criteria.
Treat every trade as its own
This means that you need to treat every trade as an individually new trade. You should not take a trade based on the outcome of your previous trade. Each and every trade is different from each other. It is applying all set of rules and risk management all over again.
Things to do after entering a trade
Whether you are an emotional trader or mechanical trader, there’s a level of intuition. This intuition is developed from experience and observation.
Intuition is important while in a trade. Because it is intuition that helps you to understand the trade better and its variable, whether to hold on to the trade or should it closed right now, can all be answered through intuition. Our job is to keep developing this strength after every trade.
Think of the opposite
While in a trade, think from all angles and think about the opposite action. In trading, think about who is trading against you and what his ideas are. What would you have done if that person were you? Would you change your action plan and how would you react.
Just because everyone is getting out of the S&P 500, doesn’t mean you should too. The media and there talking heads are often on the wrong side of the trade.
Get away from negativity
Always surround yourself with people who think like you. As they are all having a similar approach to the trade as you are. Everyone is following the same plan. You will not get distracted. You can also learn from them. Taking bits and pieces of knowledge and then implementing them in your trade.
You too, can contribute with your own ideas. Don’t be afraid to be different.
Never stop learning
The worst thing you can do is not learn something from the trade. We are just stuck with the trade and be settled in our comfort zone, just by looking at P&L. In order to evolve as a trader, you must continuously be looking for opportunity. And you will find this opportunity only if you have enough knowledge.
You should look for points that you have learned from the trade. It will help with the next trade. And also help in reducing risk. You should always be thinking about different markets and new ways to implement these ideas.
Life is an iterative learning process.
Have the mentality of a chess player
You should always be thinking of the possible scenarios the market can go after entering a trade. And what are the different courses of action you will take if the market gets there?
Use your own metrics
Each one of us lives in our reality with our own beliefs. Everyone has different performance goals. You should not compare your goals with others. Or you should not try to achieve other’s goals. Make performance metrics that fit your trading style.
Every trade has different targets and might change according to the situation. So you should not be following other’s targets and their performance measurements.
Try to keep these principles in your mind while in a trade or before a trade. If you follow these points, it is sure that you will come out as a winner from the trade. Do not mess up your thinking.
The right mindset is more important than the right strategy. You can incorporate then in other aspects of our life as well. Trading itself is a teacher.