Trading is a business and like any other business, it requires trading discipline and positive habits to have a chance of success. Experienced traders have long recognized that psychology and trading discipline trading are the integral part for success. However, many novice traders do not think about how to use the right mindset and discipline. Instead, many of them focus primarily on their strategy and the desire to earn a lot of money.
Before you make your first transaction, you will need to take a step back and think about what you are doing. The trading process entails making a certain amount of risk to gain a reward. And the bigger the risk, the higher the potential profit.
You also need to understand that you are involved in the business in which you are trying to make based on the probabilities associated with the alleged statistical advantage on the market. If you want to succeed in the long term, your approach can not depend on luck. You should know what you benefit and exactly how it can be implemented.
Every business has pitfalls, and trading is no different. When you are selling fast food, there is always the risk that your refrigeration equipment fails, or you have unsold inventory of products. You have to understand that there are risks to be taken, and there will be times when you will lose money. Losing trades are inevitable and should not affect your self-esteem.
The fact that you have a losing trade or series of losing trades doesn't mean you should fear that your trading strategy is not working. A reliable trading strategy should be based on the idea of what you will receive in a secondary transaction more than lose. You don't need to make a profit every time you open a new deal.
Fear in trading
Fear can affect the decisions that you normally take. The book "the Disciplined trader" by Mark Douglas describes how he almost lost all their capital due to bad trading decisions caused by fear. While the book focuses on how emotions affect trading, also here's how fear can affect your daily decisions. The purpose of this book was to teach traders how to control emotions in trading.
One of the ways to eliminate fear or emotional aspect in trading is to try to include practices that will help you become a more disciplined trader. This may mean the creation of certain rules. For example, trading only the most liquid period of time, holding only one or two positions at a time, or any other criteria that, in your opinion, improve your trading discipline.
Although there are automated trading system, often they do not use a discretionary approach that would take into account different market conditions, as well as fundamental factors. As a rule, markets are trading in equilibrium and change when new information arises. Reading the news every day, you will be aware of relevant information about the movement of the market, which will help you to form your own view.
Every morning you can check the economic calendar which tells you what you should expect on this day, as well as what will happen this week. This will help you avoid opening positions at an unfavorable time, for example during the release of the NFP report.
As we mentioned, trading is a business and part of your business includes income and expenses. Most businesses incur expenses that can be expected or unexpected.
If you make a profit of 60% of the time and suffer losses of 40% of the time, and your profits and losses are about equal, you will have a winning strategy. If so, then you should not be afraid of losses in single transaction. For you, a loss will occur in 4 out of 10 trades. No one wants to lose money, but, fully aware that losing trades are inevitable, you will be better prepared to cope with negative results in their trade.
Fear can and should occur, if you decide to take the risk, go beyond your trading plan. An example would be if you decided to ignore your stop loss or decided to average a losing position.
Trading is the process of taking risks. Every day you need to assess the risks that you have, and determine whether it fits your original settings. If you plan to trade manually, this process is very important. On the other hand, you plan to trade using an automated trading system, then your daily reassessment of risk should be incorporated into a trading algorithm.
If you are an active trader who regularly trades in financial runcache, you have to build for themselves to view and evaluate graphs trading tools. If you are searching for intraday movements, you will need to have your graphics have always been in front of you.
If you are a less active trader, you can look at the charts once a day or even once a week. Weekly timeframe gives you a broad overview and show the long-term trend or consolidation. When you look at the weekly chart, you can see many things that are not so obvious on the daily or intraday charts.
After evaluating a weekly schedule you can move on to the daily schedule. A weekly chart will allow you to look back to determine longer-term levels of support and resistance. If you looked only 1 year of data on the daily chart, you probably would not see this information.
Trading discipline and a systematic approach
A systematic approach in which you test your strategy and then run it on autopilot, helps to remove some emotion from their trading. For this you can use the program Forex Tester or use the strategy tester, included in MetaTrader.
Many traders think that trading with robots is much easier than manual trading, because in the first case, human emotions are removed from decision-making.
It is obvious that it is almost impossible to eliminate all emotions, even with a systematic approach. You will be happier when you will earn money trading, you'll be less happy when losing money. It is important that you control your emotions. You need to give the new system an appropriate amount of time to determine if it works.
There is a saying that some traders are constantly trying to catch a "falling knife". This means that you can always enter a position when the market is a bit stabiliziruemost. However, many traders try to catch the first volatile movement, which often leads to losses.
Fear has a way of making you do something that does not match your strategy. Instead of having to stay on the market and use tight stops.
Emotions can play an equal if not greater role in determining your success as a trader, what trading strategy you use. For this reason, the trading discipline is very important for success in trading.