Wednesday 14 November 2012

Why it's important to stick to your trading plan

You will always hear that a good trader has a trading plan.  A trading plan should be your 'Bible' or 'blueprint' for your trading - your personal strategy of how you will analyse the market and execute and manage your trades.

Your trading plan will specify what you are looking for before you take a trade, when you will take the trade, where you will put your stops, what your target is, how much money you will risk, and when you will get out of the trade.  Every trader has his/her own specific plan personal to them, because everybody has a different amount of capital to use, different levels of experience and confidence.  Different plans work for different traders.

So today I learnt my lesson again - stick to the trading plan.  It's very easy to get sucked into the market, and usually it's because we are afraid we will miss the move.  Part of my plan is AVOID TRADING AT THE MARKET OPEN.  The reason for this is that the market is too volatile, and even if we get our analysis right, the price movement is so large at the opening that it is easy to be stopped out.  This happened to me today.  I saw a clear sign of weakness just before the market opened, and on it opening I took a short trade.  It moved against me almost immediately and took me out at a 25 point loss.  However, not long after I saw confirmation of that weakness and took another short trade and made my money back with a little extra.  So today not much of a profit, and a lesson learnt.

So my analysis was right, but I did not stick to my plan.  Always be happy even if you finish the day having broken even.  It's better than being at a loss!

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