Long-Term Trend Trading – The Time Advantage! Fundamental News Trading: For the Forex factory trading plan, the Bears of the Birds?
If we think of trading as a business, then you’d pretty much be buying into a failing corporation. In fact, trading is a business and needs to be treated as such in order to achieve success. There is an array of reasons, but probably to two most common obstacles are loss of emotional control and poor money management. Before we answer that, let’s elaborate more on the business of trading. Just as you would create a business model before opening a retail store to sell widgets, the same holds true for trading. Every trade you make is a business decision that will affect your bottom line. So to answer the question, a trading plan is a pre-determined strategy or set of rules used to base trading decisions on when approaching the markets.
Our goal with a trading plan is to eliminate the obstacles that hold us back from succeeding. Good or bad, emotions are dangerous. Generally speaking, emotional trading leads to poor decisions and impulsive reactions. If you’ve traded before, you’ve probably experienced this.
I know I have and I see plenty of seasoned traders lose control from time to time. For example, they come when you lose money on a trade and throw any sensible judgment out the window in an effort to make back what you just lost, rather than moving on to the next well planned trade. Or maybe you missed a trade and chase after it only to increase your risk and lose double what you initially intended. On the other hand, positive emotions, like feeling good about a winning trade you just made, can be just as destructive. That’s not to say that feeling good about a trade is a bad thing.
It’s okay to feel good, we want positive energy when trading. But we want to keep that good emotion in check to avoid becoming over-confident. A trader might have 4 great days in a row, then on the 5th loses everything he made for the week. Trading well for a few days in a row is not an excuse to trade bigger. You need to be consistently profitable for months on end before considering an increase in position size. The second obstacle separating the successful traders from the unsuccessful is practicing poor money management.