KOG - "Fail to plan, plan to fail" Traders,
The market is designed to confuse retail traders, the reason for that is they know 95% of you enter these markets with no plan. You’re not aware of the levels, you’re not charting the pairs you trade, and you lack the basic skills to manage your money and your risk. You need to have a plan before you enter a trade, you need to have a strict set of rules, and everything should line up as much as possible before you take the entry. By the time new traders understand they need a plan, they’ve blown their accounts and blame the markets.
Every trader, before they start their day needs to have a strict set of rules they abide by before entering the markets for a trade. There are many variations and most will have their own rules, but to start you off here are a few we set out for our traders. They're not uncommon, simple steps to take to keep you safe in the markets.
Is the market ranging or trending?
We have to adapt our trading style in accordance with what the market is doing. If it’s a trending market, we know we have a clear direction on the pair and we know the levels of the trend as well as the levels that are provided. We then add the target to this and now have a clearer understanding of where price may support or resist before continuing the trend. When the market is ranging, we adapt our trading style knowing that we’re going to experience a lot of choppy price action as well as extreme up and down swings. We plot the range, we add the levels, and we now have a clearer understanding of support and resistance as well as the range high and low. When the range breaks and confirms the break, you know whether you should be entering or getting out of a trade. Holding on to hope will kill your account and you will then blame the market.
Are there key levels above or below?
Key levels on a chart are really important to understand. You need to add the levels on the long term charts and the levels on the short term charts. This gives you an idea of where price may go before it either supports or resist the price. It also tells you whether price is going to continue in the direction if the key level breaks and the turns into either support or resistance. You can now plan, if the price continues into that level how much will my account be in drawdown, will I be able to hold, do I need to hedge, should I take the loss and switch direction. Holding on to your bias and hope will very likely kill your account, you’ll then blame the market.
How much capital am I risking?
You need to treat this as a business, no matter what your account size. Every day there are large institutions who want to take your money away from you, you’re in this market to take from them and give them as little as possible. You should have a risk model in place, am I going to risk a certain percentage of my account? Am I going to stick to a stop loss of a certain amount of pips? Am I going to have a risk reward that makes sense? Your stop loss and risk management plan is your best friend in this market, it allows you to limit the losses and live to trade another day. It also allows you to trade with a fresh mind everyday because you’re not holding on to hope. Traders fail because they don’t have a risk model, they then get stuck in a drawdown which doesn’t allow them to trade because they’re waiting the entries that are in drawdown to come back into the price range. Cut your losses early, if you’re wrong you’re wrong, don’t let your ego right checks your butt can’t cash! Holding on to losing trades with no risk model will likely blow your account, you’ll then blame the market.
Are there any new events?
News events can move the markets in a very aggressive way but will move the price into the levels that you should already have added to your charts. News brings volume and a lot of traders will use this to their advantage to either scalp or to get good entries on the pairs they trade. It’s best practice to not trade before the news releases unless you’re already in the right way of the market. “The trade always comes after the event”, wait for the price to be taken to the level they want to either buy and sell, wait for a confirmed reversal on the smaller time frames, once everything lines up, then look to take an entry. Trading news events comes with years of practice, it also takes a lot of discipline and the ability to manage risk, not only that but you have to be willing to switch your bias in an instance if you get it wrong. Most traders lack this experience, trade news events like it’s a normal day on the markets and then blow their accounts in one hit, you’ll then blame the market.
Am I following my trading plan?
“Fail to plan, plan to fail”. As above, you need to plan every single trade you take, make sure the market conditions are in your favour, make sure the price is at the right levels, make sure your risk model is in place, make sure you’re aware of the risks involved if it doesn’t go your way. By doing all of this and making a plan, you know what the worst case scenario will be, by knowing that you’re emotions and psychology won’t be affected that much and you will build your confidence. You’ll then develop your strategy and you’ll have a better understanding of what kind of ROI you can consistently make in the markets. Have the discipline to follow your plan and stick to it like a you’re a robot. Get used to taking losses, this is part of the game you’re in. Your wins just need to be bigger and you’re on your way to becoming a consistent trader. Most traders don’t follow their plan, they then blow their accounts and you’ll blame the market.
Hope this helps at least some of you stay the right side of the markets and we wish you the very best in your trading career.
As always, trade safe.
KOG
