New year, are you ready?
If you fail to plan, you are already planning to fail. This quote applies to life and trading as well.
If you faithfully follow the topics mentioned in this article, you can clearly notice a positive transformation and improvement in your trading journey within one year, which may take 4 years.
First, you need to understand the purpose of starting trading.
Is it for the short-term thrill of making money, or do you want to become financially independent?
If your answer is financial independence, remember that it takes time and effort in the right direction.
When you play a long-term game, you will get lost off track if you don't have systems and processes in place.
Creating a plan and following it daily may seem tedious, but you must do it to stay on the right track in your trading journey.
Most traders do not create or follow any trading plan and tend to trade randomly.
The problem with making random trades is that you will never be able to understand or develop a reliable and profitable trading system that fits your trading style.
As a trader, you need to make some progress in the right direction, no matter how slowly you are making it.
It is easy to get lost in random trading when you trade based on feelings and emotions rather than logic and discipline.
Creating a successful plan and sticking to it is essential to success in trading.
The plan should be written with clear signals that are not subject to change during trading but are subject to re-evaluation when the markets are closed.
The plan may change with market conditions and may undergo modifications as the trader's skill level improves.
Each trader should write his own plan, taking into account his personal trading methods and goals. Using someone else's plan does not reflect your trading characteristics
Trading plans vary for each trader based on their style and risk tolerance.
1. Determine the purpose
First, if you are new to trading, you should define your financial goals, risk tolerance, and time horizon. Also, find a clear purpose for why you started trading. If the reason is unclear, it is easy to get lost.
Trading overtime can become addictive, we get used to chasing the dopamine rush of making trades and wanting to know if we will make a profit. It can turn into gambling.
In this case, it is essential to remind yourself that you did not start trading to become a gambler.
But to improve your lifestyle in a decent and logical way without relying on any third person or working under someone else's supervision. If you are your own boss, you cannot be a gambler.
2. Choosing a trading style
You must define a trading style. This style should reflect your personality and preferences.
The plan can include day trading, medium-term trading, or long-term trading. The chosen style should match the individual's goals and availability of time for it.
If you have an active 9 to 5 job, it is better not to engage in day trading and focus on the medium and long term.
Even if you are a full-time trader, it takes time to figure out where your edge lies. No trader will be good at everything.
3. Strategy development
A detailed strategy should be created. This strategy defines an approach to the markets.
By identifying entry and exit tactics, risk management techniques, and the basic rules of strategy.
Different trading strategies should be designed to suit your trading style. You cannot use the same strategies in all types of markets.
You can design strategies independently if you have enough knowledge and experience.
Or get outside help from a friend or a mentor you trust enough.
There will always be someone who knows better than you; you can take advantage of that to speed up your learning curve.
4. Setting realistic expectations
Trading is not a guaranteed path to becoming rich and involves many risks.
Realistic expectations of returns must be set, and the possibility of losses must be recognized.
You should avoid chasing quick profits or risking too much capital on a single trade.
You should remember that trading is a profession or business with a profit rate of less than 10%, and this applies to traders who have been in this field for more than 3 to 4 years. It is not a walk in the park.
In the initial stages, you should not worry about making profits; your main focus should be on following a trading plan and proper risk management concepts. Put all expectations aside and try to protect your capital.
If you have been trading for more than a year and are protecting your capital, you are already ahead of 90% of traders.
5. Develop risk management rules
Risk management strategies should be implemented to protect capital.
Allocate a percentage of your capital to each trade; your loss on each trade should never exceed this limit.
You should also set a daily loss limit and a monthly maximum withdrawal limit. Whatever happens, you should try not to lose more than those limits; if you start losing more, no one will be able to help you.
Remember that in trading, we can only control how much we lose; the rest is in the hands of the market.
There are two main rules for risk management:
Never take a big loss.
Never enter into random trades.
6. Deal Management Plan
Determine how you will manage open positions. You should determine when to adjust stop-loss orders, take partial profits (possibly through trailing stops), or exit the trade entirely.
Many traders don't do this, but most successful traders track their trades and take action to manage them better.
Never exit a winning trade completely; never hold on to a losing trade beyond your stop loss level.
7. Discipline check
Once you have your trading plan written down, stick to it; avoid situations where you give up rashly because the market does something that triggers your emotional response, such as fear or greed.
Train yourself to be disciplined and consistent when executing and exiting trades. I know it's not easy, but I understand that trading is not for people who don't have self-discipline.
8. Monitoring and evaluation
It is essential to have a detailed record of trading activity, including entry and exit points, reasons for making the trade, and results. Frequent review and evaluation of trades is essential to becoming a good trader.
Evaluating and reviewing your past trades will allow you to identify patterns, strengths and areas for improvement.
Remember, a well-defined trading plan is your roadmap in the unpredictable world of trading. Stay focused, be patient, and continue to learn from your experiences.
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