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The other day I realized that I could simplify my life by breaking everything into a list of three. So far it’s been a very helpful exercise that forced me to focus on what truly matters whether it be my diet, my health, my family life or my work. And when it comes to markets, I’ve distilled all of trading into the following three parts.
Preparation can be best summarized by this question -- Why am I doing this trade? The true answer may take years to evolve, but essentially this is your process for finding your edge. It depends on many factors that are not even market related -- such as your propensity for risk, your preference for short-term versus long-term trades, your natural inclination towards greed or fear. Trading is as much a journey to know yourself as it is to understand the market, yet there are some universal truths that apply to everyone. Don’t trade when you are sick. Don’t trade when you are angry. Don’t trade when you are rushed. In all those cases preparation means knowing when to walking away which is often more important than jumping into the market.
Finding a setup you like is just the start of the process. What pairs will you trade? What trade size will you do? What time of day will you trade? What trade management structure will you use? Single entry single exit? Scale in scale out? Trail stop trail profit? Every one of those questions needs to have an answer, but much more importantly than that -- YOU SHOULD LEAVE ALL TRADE EXECUTION to a Robot. You will never be as quick, as efficient and as flawless as an MT4 EA or a script. You don’t have to make your entries automatic (in fact I think that every automatic EA is a recipe for disaster) but making your exits automatic is a MUST. Machines are much better than you. Learn how to harvest their power. Recently, I have started to reconfigure all of my EAs to trigger a signal rather than a trade, but once I click yes the exit execution is completely managed by the machine.
Contrary to popular opinion stops are not the most important part of trading discipline. Size is. We will all pull stops no matter what we say, We will often trade with no set stop top begin with. All of those are bad ideas but none of them are as bad as trading with size. At just 10 times leverage your chance of blowing up your account is 75%. Broker count on it. Just 5 consecutive trading losses of 1% will wipe out 50% of your capital and that could easily happen in just one week. The single most important rule of trading discipline is to trade 1X times your equity. So that if you have 10,000 in your account, no trade should be greater than 10,000 units. Don’t worry you will lever naturally just by holding multiple trades or multiple positions in the same trade, but you will be able to survive even the craziest market without losing your capital.
Each of these domains is a never-ending process of refinement and experimentation. But it’s the right structure for your trading journey and will help you get better every single day.