Traders participate in financial markets by trading stocks, futures, forex, and other securities and closing out positions to make small, frequent gains. There are various types of traders, just as there are many types of investors, ranging from the small, independent trader to the institutional player who trades hundreds of millions of dollars worth of shares and contracts each trading session.
Mistakes happen no matter what level of trader you are. They often occur as a result of too much information coming in at once, causing you to get overloaded, panicked, or frustrated. Mistakes might happen during quiet/boring periods when your guard is down. Then there are random mistakes, such as pressing the wrong button (buy instead of selling) or entering the wrong position size. Even automated strategies may produce issues if the parameters are incorrect or a program malfunctions.
It might help to take a few minutes before each trading day to go through a pre-trade routine or checklist to help minimize errors throughout the day. Depending on the market, you may want to add a few more steps to the ones displayed. Running through a routine takes a few minutes, but it might save you time and money.
Success in trading primarily depends on your psychology, while for sound psychology, you need to detox your brain daily early in the morning. No matter what you like, be it the cardio workout or minimal weight training, you must train your muscles and brain enough to cope with the high-pressure work daily. To me, exercise is one of the most important gifts you can give yourself in a quest for a sound trader.
Looking at the News
Spending hours on the news is mythically considered fixed for the “news traders” only. However, every trader must be aware of the market by navigating through the news channels and websites. You may be confident in your technicals, but they are all in vain if you are not updated from the market. A prudent trader monitors the trading calendar that enlists all critical events/decisions of the day that influence the currency and stock market.
Revision of Trading Strategy
Implementing all trading strategies in a day or monitoring them is not a piece of cake unless you are an extraordinary genius or have decades of experience. So, a trader learns a strategy and notes all the important points that he thinks will work for him. Despite practicing daily, it is the routine part of every trader to go through those points daily, so there remains no cushion of deviation from the strategy. This technique may not bump your winning percentage to 100; however, it will help you learn from your mistakes, and in the end, you will find a more suitable strategy that works for you in a specific market.
Checklist: Before Opening a Position
Before you begin a trade, you should have a checklist of everything you need to complete. This checklist should include everything that has to happen before you start trading. For instance, the checklist may suggest:
- Initiate trades when a specific criterion is met. For example, it can tell you to initiate a trade if the short-term and long-term EMA crosses.
- Only initiate trades of particular currency pairs, commodities, or stocks.
- Only open a trade when there is no significant economic data expected.
- The exact levels where you are required to place your stop loss and take profit.
Testing the Routine Repeatedly
A prudent trader takes out more of his trading routine. Routine work is tedious; however, this is how the learning process works. If your routine does not allow you to make more, you can do some modifications, at least after a month. For example, if you are a full-time trader focusing on the American session, you should experiment with this routine for a few months to see how it works.
If the routine isn’t functioning, you might try the European session to see how it goes. By doing so, you will be in an excellent place to locate the best trading period. You should also test various assets. For example, you may decide to test the stocks you want to focus on.
Some day traders have earned a fortune trading penny stocks, while others make money trading large-cap stocks. Others focus on technology companies, while others specialize in pharmaceutical companies. As a result, you should spend time testing the best assets to trade. You should also test the performance of your trading journal. This is a document in which you write your trading actions.
It might be a simple record that shows the trades you initiated and their profit or loss. The journal may also be a complex document with multiple sections such as the trades you are waiting for, technical indicators employed, and trade results.
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