Discipline
Every consistent trader I know has a maximum risk allowance per trade. This is a fundamental tool in the process of controlling loss and if you are trading actively I would highly suggest never risking more than 1-2% of your starting account on any given market opportunity. This way, if you lose, you lose small. I have heard of people risking sometimes 10-15% of their account on a day trade! Just think, after less than ten losers, the account is blown and goodbye trading career. Remember that the math of the market is stacked against you from the very start: If you lose 10% of your account on 1 trade, you then need to make 11.1% on the remaining balance to get back to where you started. If you lose 50% of your account then you need a 100% return on what’s left to get you square. Sobering numbers I know…Keep your losses small and you are giving yourself a genuine fighting chance of a far longer career in the world of trading.
“Don’t fall into the trap of over-trading.”
ReplyDeleteSetting yourself a daily profit target is a good idea if you are day trading, however if not properly applied it can be as much of a hindrance as it is a help. You see many newbies fall into the trap of hitting their daily profit targets and then stopping for the day. This may seem like good discipline on face value but things often change on a losing day. I have met many students who have had 3 or 4 successful days of hitting their target, only to give it all back in just 1 day. Typically, none of us like to lose. It makes us feel bad and after a winning streak, a few losers can dent the ego of the emotional trader, forcing them to chase the market for revenge in a state of emotional turmoil. They soon start taking unplanned trades and loading up to catch up. Think about this: You are not going to win every day but if you limit your wins and don’t control those losers on a bad day then things are soon prone to unwinding before your eyes. Maybe it would be a better idea to trade more when you are winning and less when you are losing?