“We must remove the emotional element as quickly as possible in trading. If you can do it before you put on a position, you have a good start.” Burt Dohmen
How to enter, exit, manage trades & manage your account.
1. Do you fear the price will not hit your entry level?
Do you watch the price closely & then jump in before it reaches your entry price?
Wait for the correct entry points, do not chase the price because you fear you will miss the move.
Be prepared to miss a trade by a small margin. It will happen. Accept it or you will continuously enter at unfavourable levels.
2.How much of your account do you risk per trade?
ALWAYS risk exactly the same amount. You never know which trades will work and which will not.
I am constantly surprised at the outcome of trades to this day.
3. Do you set a stop loss order when you enter the trade or do you try to stop loss manually when you cannot take any more pain and panic to exit?
You must set a stop loss when you enter your order. This is when you are experiencing no emotion and can think straight.
It is the only way to guarantee you will minimise risk. Setting your stop-loss should be an automatic process when you enter your order.
4. Do your analysis when you have no open positions. Only then will you have no bias. Try to identify low-risk entry levels in the direction of the prevailing trend. (Eg. Buy at support in a bull trend).
5. Enter your targets at the appropriate levels that you have identified in your analysis. Wait for the markets to go to your target.
Do not watch the prices go up and down, along with your p&l. Find something else to do while the trade plays out.
6. The only way to minimise your loss and maximise your profit is to exercise the correct risk vs reward ratio.
7. This means that you should only risk 10 pips in order to make 15 pips or more
8. This is only possible if you wait for the low-risk entry points because then you can have a sensible stop loss within the correct risk vs reward ratio. If you get in too early (by buying above the support level for fear of missing the opportunity), you increase your risks and decrease your potential profit.
9. Therefore you must be able to accept missing a trade by a few pips, not get upset and you must be able to then wait for the next opportunity. This is part of trading. We all miss trades that would have made a profit. You cannot get every single profitable trade.
Do not ever chase a trade as it moves away from your entry point if you did not manage to enter in time. So often prices will give you a second chance by retesting your entry level.
10. You must risk exactly the same amount on every trade and this amount should be no more than 2% of your trading account. (I recommend 1%).
The only way to avoid being emotional in a trade is when the amount of money at risk is not significant enough to cause you pain. You must be able to move on to the next trade without carrying negative thoughts with you.
By managing your risk in this way, if you have 5 or 6 losses in a row you are only down about 10%. This means that you can continue to trade without any significant problems.
You won’t be in a state of panic & desperation.
If you trade a bigger size you are trying too hard, being greedy and you are hoping to make unrealistic amounts of money in the short-term. Trading is about making small amounts of money in the long term to build an income. It is not about making big amounts of money in the short-term. Losing a large sum can lead to revenge trading, which never ends well.
Consistent trading is key. Successful trading is boring!
Trading too big will ensure you blow your whole account eventually. I absolutely guarantee this. You may have a huge gain first, but eventually you will lose everything.
If you have entered a trade & feel nervous, this is almost always because your trade size is too large. It is not the fear of losing, it is knowing that you cannot afford the loss.
If you are not relaxed when the trade is open, you should cut the size down. If you have sleepless nights & dreams about your open trades it means you are risking too much.
When you become consistent and can make profitable trades the money will build very quickly and if you continue to risk no more than 2% on each trade the amount of money you will risk on each trade will obviously grow in line with your account.
Practice this in order to build consistency. You will be amazed how the profits grow.
Set targets for your trade before you enter it according to your analysis. You cannot decide when to exit without a trading plan.
If you do not set a target for the trade before you enter, how do you know when you need to exit? Your decision will be purely emotional, spontaneous and not based on analysis.
When you can do all of the above you will have this incredible feeling of being able to trust yourself. You will be able to enter trades confidently without experiencing any negative emotions or thoughts.
You will be able to accept a loss and move on to the next trade without hesitation.
Here are some ideas of how to exit when you are targets are hit
You can scale out of the position for example selling one-third or one-half when your first target is hit.
This satisfies your need to bank some profit but also gives you the opportunity to benefit from further favourable moves in prices.
At the same time you can trail your stop loss in the direction of the profit so that if the market turns around and reverses you protect some of your profit.
By getting out in one, two or three different stages you satisfy your desire to take a profit without getting out of the whole position too early.
While you are learning to trade it is important to stick to the rules. At this stage it is not important to make money but it is important to build and ingrain good trading habits in your mind, that will allow you to make consistent profits in the future.