Sunday, December 19, 2010

Becoming a better trader

Here are several trading mistakes that can devastate a trader’s account.They are all violations of sound money management practices:

Not placing stop-loss orders. This allows a small loss to turn into a large loss and is a cardinal sin in trading.

Overtrading. Here traders are either trading outside of their trading plans, taking random trades, or having too many open positions at one time.

Moving stop-loss orders to avoid a loss. Never increase a predetermined stop-loss amount.

Exceeding the amount of capital risked on one trade or multiple open trades.

Not taking profits when available. This is letting a winning trade turn into a losing trade and should absolutely be avoided.
Basics of a trading plan

The most obvious place to start is with what you are trading. Here are several ideas to include as a start:

Define the markets you will trade.

Define specific setups you will trade.

Define entry point triggers into a trade.

Define market conditions that would void the trade.

Define the number of shares or contracts to be traded.

Define how much risk is in the trade by using money management rules.

Define stop-loss placement.

Define profit objective targets and how and when a stop-loss order is moved.

Use this list as a checklist until these questions become second nature. One excellent habit to develop is to write the information on a chart of the market that you will be trading.
(From Trade what you see by Larry Pesavento)

1 comment:

Sanjeev said...

Remarkable thoughts ! Excellent idea to keep a checklist. Could i request to pl. Elabnrate the points.