Trading is a type of business. As with any business, a well-thought plan can make or break a company. A trading plan can be described as a promise you make to yourself. It is your personal roadmap to success. It must not only contain your goals but also describe how you intend to achieve them. Traders are independent and don’t need to deal directly with other business plans. A business plan (trading) is just as important for traders as any other type of business.
Trading Psychology and Discipline are important aspects that should be deeply engrained in our minds and ultimately into trading plans.
Trading Psychology:
Your mind is your greatest trading asset. You need to protect it. How can your trading career be protected? How can you protect yourself from burnout? When and for what length of time will you take a vacation, or a break from trading. It’s perfectly normal and healthy to take a short break from trading. What do you do in the case of an unusually large loss. Do you have any emotional issues that are not related to trading? How can you handle them? Emotional choices can be very damaging to your bottom line. Your trading plan can be your protection against these.
The psychology of trading is one of the most crucial aspects of trading. However, it is often neglected by average traders. The psychology of trading is essential for traders to remain emotionally disconnected from the market. Although this sounds simple, it can be difficult to practice. The first time they go into the markets, a trader will experience many emotions. Fear, anxiety and panic are some of the most common emotions. You must be emotionally detached and stick to your trading plan. Emotional imbalance can affect your ability make intelligent decisions.
There are other factors that you should consider, besides your emotions. Are you aware of the reasons you trade? Are you trading to have fun, to challenge yourself, or to make a steady stream of income? Whatever your reason for trading, you will have a better experience and trade more efficiently if you understand what you are doing. Many traders come to the market with unrealistic expectations. Instead of thinking of trading as a business that requires effort and time, they view it as a way to make quick money. While they may succeed at first, in the end their inexperienced and overconfident natures them losing the plot.
You have to accept the fact that markets are always right and sometimes you will be wrong. There’s no shame in admitting that you are wrong. Even the most skilled traders sometimes make mistakes. You must admit that you are wrong and take responsibility for it. Fear, greed, and even hope can cloud your understanding of the market, which can lead to emotional reactions that can be detrimental to your trading. Do not fall in love and be miserable with a loss. If you make a mistake, accept it, leave the trading platform, save your capital, and wait for the next trading opportunity. Be positive and proud of a trade if you’ve followed your trading plan regardless of whether it was profitable or not.
Acknowledge the fact that you are the one responsible for your wins and losses. Losses offer us an opportunity to examine where our plan failed and to immediately make corrections.
Discipline:
As with most things in life you cannot succeed without discipline. Discipline is the ability to stick to your trading plan. You must possess a high degree of self-discipline and a well-designed trading strategy to maximize profit and minimize loss. While creating a trading program is simple, it is the ability to adhere to that plan that will separate skilled traders from the rest. A trading plan is easy to adhere to during periods of profit. A trading plan that is rigid and constricting during periods of profit will not be as effective when it is in loss. It will be tempting for traders to abandon the plan. While you may sometimes wish to alter your trading plan at times, it does not affect the reason that you prepared it. Remember that the plan was meant to be a guideline. Breaching the plan can often result in risk exposure you weren’t expecting.