All successful traders will say it is important to have a system in place that enables us to automate and organize our actions throughout the trading day.
This trading system should be a well greased machine that should function based upon a few essential components: healthy trading habits fueled by proper mindset (trading psychology), money management (your ability to manage risk) and method (implementing with ease your trading strategies).
Implementing healthy trading habits and routine will help with all the components above. Successful trading is all about respecting key rules to minimize stress. Healthy trading habits results in excellent results.
Here are some of my healthy trading habit tips.
1. Have a plan before you initiate a trade. A detailed trading plan is your blueprint to success. It will help you define you as a trader, the way you trade, will help you find, execute and manage trades with ease and most importantly will help you put the education puzzle together.
2. Always analyze all closed trades, winners and losers. Having a trading journal will help you identify what works for you and what not; it will funnel you in the right direction. It is by far the most helpful method of personal trading introspection.
3. Maintaining a positive trading attitude will improve your money management and risk management skills. A negative trading mentality will alter your thinking and mindset. Your attitude will determine whether or not you are profitable with your trading. Your attitude is more important than your market knowledge and even your level of experience. It is important how you react to the market and not what the market will do to you.
4. Controlling Emotions. Emotional swings and emotional stresses impact your mental state of mind and will affect your trading decisions. When you trade with emotions you don’t trade clearly and rationally. Some books talk about separating your emotions from trading. But how is this possible? To even try to separate emotions is like fighting a losing battle, taking control over them that is a different story. Trading involves the most emotional COMMODITY in the world which is….money. Money outlasts hate, love, greed and anything else you can ever imagine. The only way to control your emotions as a trader is to have a solid trading plan.
5. Trade in the zone –Focus is key in trading. Make sure you are do not have any distractions around, no internet browsing, no phone answering, no kids playing, it should be just you and the charts. Let the charts speak to you and they will tell you what to do.
6. Have the right tools. Trading and the whole psychology is hard enough, having to worry about an unreliable trading platform, poor charting and layout, bad internet connection can take a hard toll on your trading and the future success of your business.
7. Position sizing. Maintain a healthy position size for your account. Recommended size is 1 to 2% of the capital risk on a trade. This is the one thing that will make or break your trading account.
8. Develop and cultivate discipline. In my opinion this is the most important element of trading. Discipline is translated in the ability to follow your trading plan. Discipline is the essence of all of the psychological issues. All the rules and strategies do not count if they are not followed to the T. Discipline is what differentiates a successful trader from a trader that struggles.
9. Patience. Take time to evaluate your plan before even thinking to place a trade, analyze market conditions before pulling the trigger. Patience is one of the key qualities you need to have in order to be able to deal with different situations in trading from the point you decide to enter your trade, to how you manage your trade to setting and waiting for your targets.
“I just wait until there is money lying in the corner and all I have to do is go over and pick it up. I do nothing in the meantime. In essence, by not wanting to trade, I have inadvertently transformed myself into a master of patience. By forcing myself to wait until there was a trade that appeared so compelling that I could not stand the thought of not taking it, I had vastly improved my odds.” Jesse Livermore
10. Market conditions. Always respect market conditions and take what the market offers you. Never try to outsmart the market.
11. Alleviate impulse and revenge trading.
12. Keep it simple.
13. Never force a trade. If you have to squint at a chart, it means that the trade is not there, move on to the next possible trade.
14. Gain confidence. Confident traders rely on their own judgment and not what others are saying. Take full responsibility for your trading decisions. Being successful requires you to trust and follow your own trading plan.
Regardless of what instrument you are trading whether it is stocks, futures, forex, it is important to develop healthy trading habits right from the beginning, this will fast track your trading to success and profitability. Developing healthy trading habits is as important as your trading strategy and personal trading plan. Having the right approach and self discipline is what makes a trader successful.
What trading habits would you add to this list? I encourage you to leave your comments.