Trading is a form of business. In any type of business, having a plan that is well thought out can mean the difference between achieving success or failing. You make a trading plan with yourself. A trading plan is your blueprint for personal success. This plan should not only outline your goals but how you are going to accomplish them. The traders are usually working alone and do not require the usual organizational concerns that face other business plans. A trading plan is just as important for traders as it would be for any other kind of business, what is trading vs investing?
Trading Psychology and Discipline are the three most important things that should be ingrained in our minds, ultimately affecting our trading strategy.
Protecting your trading mind is essential. How are you going to stay protected throughout your trading life? What will you do to prevent burnout from occurring? How much time will you spend on vacation, or taking a break? Take a healthy break. It is OK to stop trading. What are your plans in case you suffer a particularly large loss? You may be emotionally influenced by things other than trading. Do you have a plan for dealing with these issues? Decisions made emotionally can have a negative impact on your business. Trading plans are your best defense against emotional decisions.
It is surprising that the average trader does not pay enough attention to the psychological aspects of trading. Trading requires traders to be detached from their emotions. While this may seem easy to state, it’s often hard to achieve. The first-time trader is likely to experience many emotions. They may feel fear, anger, frustration, or even joy. Keep your emotional distance and stick to the plan. The emotional instability can affect your decision-making ability.
Other things than your emotions are also important to keep in mind. What is your trading purpose? You may be trading to get a thrill, for challenge, or even for an income. If you have an objective, it will make trading more fun and you’ll be able to trade better. Many traders enter the markets with unreal expectations. Many new traders view trading as “quick money” and not as a serious business that demands time and effort. While they initially may succeed, their overconfidence and lack of planning will ultimately catch them up.