Rookie Trader Holy Grail
Trading can be liberating. You can be free, live the life you want to live. You can be independent and not work for anyone. This is the life of a successful trader. Many aspire to it but few succeed. The game is hard and rookie traders lose due to going for short term thrills in the market. Rookie traders gamble in the market instead of taking calculated risks.
“Freud believed that gambling was universally attractive because it was a substitution for masturbation. The repetitive and exciting activity of the hands, the irresistible urge, the resolution to stop, the intoxicating quality of pleasure, and the feeling of guilt link gambling to masturbation.” – Trading for a living by Dr. Alexander Elder
The following rules will help you avoid getting high by gambling in the market. The rules are simple and apply to each and every asset in the financial market.
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Have a trading plan
Trading is 80% planning and 20% execution. The planning involves research on the asset you want to trade. For example, for currency trading, your research may involve the following. Currency pair day high and day low, news releases on the currency pair, current trend of the currency pair. Planning enables you to have a sober mind when entering the market. Without a plan, the fear and greed of the market crowd may pull you in causing you to make unwanted trade decisions.
Trade according to your plan
After formulating a plan, you have to follow the plan to make profitable trades. You cannot change the plan half way into the trade. Your judgment may have been impaired by the currency movements causing you to make unprofitable trade decisions. If you are not sure of the plan, get out of the trade and restrategize while you are out of the market.
The trend is your friend
The trend will help you make money without a fuss. It is of no use to try and go against the trend. The market crowd is stronger than you hence going against it would be disastrous. Stay long (buy) in a rising market and stay short (sell) in a falling market. Never try to fight market sentiment.
Cut your losses and let your profits run
Trying to get greedy or optimistic will cost you a lot in the market. Let your trades run when making profit and cut your losses fast to avoid incurring further losses. Never increase your stop loss but you can always adjust your trailing stop loss upwards when making profits.
We trade on information
Release of new information causes currency movements in the market. You should trade after release of information to be safe. It is very difficult to predict the effect of an economic news release on a currency. You can trade before news once you have a clear understanding of the market.
All in all, you should have a plan and trade a plan. This will secure the down side and allow you to exploit the upside of your trades.
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