BUILD A CASE
So now you have all the tools needed for effectively trading the markets. However, don’t get too overconfident. The markets can be a deceiving and confusing place. That is why the key to being a professional trader is to build a case. What this means is that before entering a position in the market, you should build a case just like a detective.
No one knows whether the market will go up, down, sideways or in circles. What we can do is give our best educated guess and open a position knowing that we have minimized all risks possible. That is why when setting a strategy, you will need to make a checklist. List out all the conditions needed to open up a buy or sell position. If a set up is found and checks everything on your list, then you may enter your position.
It is highly unadvisable to enter the market if even one of your conditions is not met. This is because it increases your risk of losing. It is better to miss out on an opportunity rather than going in blindly and gambling. Keep track of all your trades in a trading journal and this will help you identify any problems you may have with your trading strategy.
KNOW WHEN YOU’RE GOING TO ENTER/EXIT
So, you’ve built a case based on everything you know. What is important is to know when to enter and exit the market. Trading is about timing. If you get the timing wrong and predict something that will happen too far into the future and enter too early, you will most likely end up losing money early on.
That is why you need to, first of all, set an entry point. Then, set up your exit points; meaning, your Take Profit (TP) and Stop Loss (SL). A lot of traders starting out will fail to set up exit points. So perhaps, early on they will see a profitable position that may turn into a losing position in the long term. Why? Because they didn’t set a target and were chancing it.
Entering the market means knowing when you are going to get out. Be decisive with your positions. It’s better to take home some profit rather than suffer extravagant losses. It’s also better to suffer a minor loss rather than chance it for long term profit.
EMOTIONS LEAD TO FAILURE
When your money is on the line, it is understandable that you will feel uncomfortable. The common emotions you will face are fear, anxiety, greed and anger. The reason why in tip number 8 we tell you to build a case, is so that you can get rid of the fear and anxiety and anger. You will know that you did your best, and sometimes the market just doesn’t go your way and that is perfectly fine. In tip number 9, we tell you to know when to enter and exit the market. The reason for this is to control fear and greed.
Fear comes in when you are incurring a loss. Do not move your stop loss. Before you entered the market, you determined where you are going to exit on an objective basis. So, if you move your stop loss now, it is not based on objective reasoning. The same goes for take profit. Do not move your take profit. Traders tend to get greedy and start moving their take profit for larger gains; only to find that the market ends up reversing on them.
Do not let your emotions control you. Once you have set up a plan and put it in motion, trust in your plan. Know that you have done everything that you could have done.