By Michael Tibbits, YouCanTrade Content Specialist
Whether you are a new trader or an experienced trader, having a set of good habits can help you be the best trader you can be. Below are the six habits I think every trader should practice when trading.
#1: Plan your trade
Make a set of rules that you will use to guide you in and out of your trades. And, make sure you stick to them. Each trade you take should be based on some set of rules. Here are a few things to consider to craft your rules:
- Entry Trade
What rules are you using to determine when and how to enter a trade? Will your entry be based on a pull back to a moving average? Standard deviation calculations? Hand-drawn trend lines? Whatever you choose, make sure you stick to it.
- Time Frame
How long do you plan to be in the trade? Hours? Days? Weeks? Is your trade time sensitive? Are there any upcoming company or economic events that could affect your position while you are in the trade? Knowing your timeframe and being aware of any events coming up can prepare you to manage your positions.
- Exit Plan
Deciding when to get out of the trade is just as important, if not more important, than getting into the trade. Before you hit that buy button, you should already know what set of conditions will lead to you to close out of your position. Will you wait until price reaches a key support level? Are you basing your exit on a certain percentage of profit? Have you thought about stop losses? If the market goes against you, how much are you willing to lose before you cut your losses?
Planning your trades beforehand will eliminate unnecessary stress or impulsive decision making when placing a trade, managing your trade, and exiting the trade, especially when things don’t go your way.
#2: Be meticulous
You’ve planned your trade, and now it’s time to trade your plan. Attention to detail is important when studying a chart, looking for trade setups and avoiding mistakes. By scrutinizing yourself, you are helping yourself stick to your own rules while paying attention to trade details. Don’t try to get ahead of your plan or anticipate the stock price movement before it happens. It sounds cliché, but don’t chase the market- let the market come to you. There is a reason why you made your plan, so be meticulous and make sure everything checks out before entering – and exiting – your trade.
#3: Stay focused
A successful trading strategy is a process that takes time to develop. As you develop your own strategy, there will be times where you might find yourself distracted by “yolo traders” and other trade “gurus” claiming they made millions using a particular strategy. Don’t let these things take your attention away from developing your own strategy.
#4: Practice Stress Management
Trading is stressful. Whether it’s just a hobby or a full-time job, it’s important to remember to step away from the computer to destress. Focusing on one thing for too long can make the brain fatigued and lead to feelings of aggravation, frustration or inability to concentrate. Taking a walk around the neighborhood, watching an episode of your new, favorite tv show or exercising are all ways to help get your mind off your trades. I am no doctor, but establishing a healthy sleep, diet and fitness routine will not only benefit you in your overall health but will also help keep your mind fresh when trading.
#5: Don’t get hung up over losses
Losses suck! But, it’s part of being a trader. Don’t let it get you down. If you took a loss, share it. Heck, if you made a profit, share it! Sharing your experiences might help someone else learn from your mistakes. Even the best traders make mistakes, but they don’t get down on themselves and dwell on it forever. They get back out there and keep going. The next time you take a loss, try to learn from it and move on.
#6: Keep learning
Don’t limit yourself to one trading style or one asset class. Learn as many trading strategies as you can and how to apply them. Learn to develop strategies that work in bullish markets, bearish markets and sideways markets. Learn strategies to protect a stock portfolio. Learn how to hedge with options. Learn from trade coaches and other traders. You might find opportunities you never knew were there. The more strategies you learn, the more skills you will have to trade your plan.