I have just attended a trading club meeting in early January and the Organizer/founder/leader has just given a glimpse into how he plans his trades and also a reminder to work on eradicating bad trading habits. In this post, I will touch on both. Hopefully this is not going to be a long post.
Basically there are some components to executing a trade. They are as follows:
- Fundamental Analysis
- Technical Analysis
- Risk to Reward
- Stick to the Plan
- Respect the Markets
- Review the Trade
- Recalibrate if needed
What he recommended to start on a trade was to take a fresh sheet of paper, and write down what he thinks is the general trend for at least 3 months, like which currencies are bullish, bearish, neutral, pair up the currencies accordingly, and use technical analysis to enter positions, set profits and loss. So basically starting with fundamental analysis, than use the rest to complement it.
Also, he mentioned to reflect on the past trading year, and name 3 trading bad habits or recurring mistakes made and aim to work on improving them this coming year. So, I decided to take his advise, and record them down and hopefully at the end of the year, when I look back at this, I hoped to have eradicated my bad habits. Here goes my top 3 mistakes in no particular order.
Stick to the plan
I suppose this is a common issue among novice traders like myself. Things such as closing positions before profit or loss targets are hit, not doing proper position sizing, not having a good risk to reward ratio etc. There are many many more. To counter this, I plan to come out with a trading checklist before I enter any positions. This will help me have greater discipline and not to have a massive drawdown as well. My accounts are nearly close to 0 but I do not wish to top up for now and will attempt to fight back to my original amount. Hope that trading will be better for me this year.
This is something that I have done at the beginning when I first started to trade, but I did not know what I was doing. Now, I still do not know what I am doing entirely and I am not doing reviews on my trade. I need to get back into the habit of reviewing my trades but it is quite troublesome to do it due to the number of trades I execute. At the very least, I need to make a record of the reasons why I enter the trade, and what is the end result of the trade. Also need to take note that a trade that is profitable or a loss is not necessarily a good or bad trade. It depends on variables which cannot be quantified as well. There is another problem to this aspect with regards to how to review the trade. There have been times when I tried to review, but to end up in frustration only as I did not know where went wrong. I need to learn to utilize my resources more. Perhaps I can look to people in the trading club for advise.
This is an issue which plagues many traders and especially for myself, this is a difficult area to manage. People are into trading to make money and I myself am no exception. However, the thing which I really need to take note of is that I just started trading and I should not be aiming to make profits but actually to learn and figure out a way to trade profitably in the long term. This links back to the point above on trade review, which I should be doing and I have not. The desire to make money has gone to my head, and with each losing trade, the frustration sets in and I will tend to make more losing trades and the cycle repeats. For now, I suppose the way is to reduce my trading position size drastically so that each loss is not that painful and is more manageable. Furthermore, I need to take rests and not trade so frequently so that each trade is thought through better so that I can make better trading decisions.
So there it is, my 3 issues which I need to work on. It is a tall order, but in order to progress and improve on my trading, these are things which need to be done. That’s all for now and happy Chinese New Year everybody!