One of the main reasons that traders are not successful in the markets is a lack of planning.
But why is planning important?
Since 2017, I have started to issue signals. The challenge with signals is there is a constant demand to “issue signals”. As you can imagine, this pressure is not helpful, as you tend to force things.
While you may not be issuing signals yourself, you may feel the same kind of impatience with your own trading. Many traders are in a hurry to make profits and, therefore, they may think they need to trade more. If you are a discretionary trader, like me, trading more is not typically the right thing to do.
An analysis of trading performance tends to show that it is the few high conviction ideas that you have had the courage to hold onto that provide the majority of your results. The lower conviction losses tend to claw away at your profits. Focusing on less trades of a higher quality will lead to better results, particularly if you double down (scale in to) the best trades.
One response to this issue? To increase my level of planning.
This over-trading problem can be solved by having the discipline to say “no” to anything but the best trades. This is easier said than done, as convincing yourself that a bad trade is a good trade in the heat of the moment is easy to do.
So, how to do we overcome this problem? It’s not through saying, “I’m going to be disciplined today.” Rather…
It’s about planning
Good trading happens well in advance of any trade being placed. It’s about knowing where the high conviction ideas are, how you are going to implement trades based on those ideas, and how you will manage the trade once you have entered.
This does not happen on the fly. You need to do your analysis separately and first. Here is where you assess the current market conditions and determine what are the key technical and fundamental drivers.
Once you have completed this analysis, give yourself a break to digest. I do my analysis on a Saturday, but I don’t decide on my trades for the week ahead until Sunday.
Then, for each currency pair you follow, write out the plan on how to trade it. This needs to include where and how you are going to enter and why you like the trade or not. It’s quite OK to sit on the sidelines if you don’t like it.
Discipline is following the plan
Once you have done this planning, simply wait for the conditions you have written in your plan to occur. Once they do, then you enter the trade.
If you either:
- Don’t enter the trade; or
- Take a trade that is not in your written plan
Then you have not been disciplined.
By implementing this approach, trading becomes simple. If your plan is not working, you need to ask yourself why. Perhaps market conditions have changed and you have not noticed or perhaps you need a better model of how the market works.
The good thing is you are in control. The discipline gives you the freedom to get better and improve, rather than constantly chipping away at your confidence with heat-of-the-moment trades that don’t work out.
It’s about preparation
Good trading is about being well prepared, and planning is a key part of that.
Yes—it may be hard work, but if you truly want to succeed that is not something you should be afraid of.
About the Author
Sam Eder is a currency trader and author of The Consistent Trader and the Advanced Forex Course for Smart Traders (get free access). He is the owner of www.fxrenew.com a provider of Forex signals from ex-bank and industry traders (get a free trial). If you like Sam’s writing you can subscribe to his newsletter or get FREE access to his acclaimed How to Be a More Consistent Trader Short Course.
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