Disciplined Trader – Introduction
Being a disciplined trader is one of the most important things you can do become successful. People who take trading as a hobby often don’t achieve the success that they desire. This is because without discipline, these people often make simple mistakes that often wipe out their account. Surprisingly, being successful does not take a lot of time and effort. In fact, as you will see below, discipline involves the simple things you often ignore.
#1 – Having a Trading Journal
A trading journal is a very important document that successful traders and investors have. This journal is a document where they put down a few details before they open or close a trade. When opening a trade, traders note down the asset they are buying or selling, the time of doing the transaction, and the reasons for doing the same. Some traders ignore this because they assume that the trading software takes care about this. True, some applications do this for them. However, in the long term, you will be successful if you have the habit of writing these details on a piece of paper. Warren Buffet who has been an investor for more than 60 years has always used a piece of paper to note these details. If he does this, who are you not to do it?
#2 – Having and Sticking To the Same Ratio
The ratios that you have will play an important role in determining your success as a trader. In this, the ratio refers to the risk reward ratio. This ratio tells you the maximum amount of profit and loss you can take per trade. Though there is no recommended ratio, most traders prefer using a 1:2 or a 1:3 risk reward ratio. The first ratio means that a trader is willing to lose a dollar to make a profit of $2. For instance, you can open a trade and be willing to lose $100. If this happens, your profit should be above $100. You allocate the risk reward ratio using the stop loss and take profit. A stop loss automatically stops the trade when your maximum loss level is reached. A take profit on the other hand stops the trade when your profit level is reached. Many traders do not stick to these ratios. They extend their losses hoping that there will be a reversal.
#3 – Time of Trading
The benefit of being a trader is that you can trade any time of the day for five days a week. However, to be a successful trader, you need to have a specific time of trading. This could be in your morning hours, afternoon or evening hours. Most traders prefer trading during the market open or during the intersection periods. This is because this is the period when most trading happens. You should stick to the time you have found success in. Doing this will help you to be consistent and understand the cycles a market takes.
#4 – Trading Strategy
Another way of being a disciplined trader is having a trading strategy that you are comfortable with. There are hundreds of strategies you can use to become a successful trader. Actually, you don’t have to stick to the strategies that exist presently. You can develop and master your own strategy. Doing this should take some time because of the back testing that is very necessary. To be a disciplined trader, you should have a strategy and stick with it.
#5 – Reflection
Another thing that will help you become a disciplined trader is taking time to reflect. Remember that your mindset determines how successful you will be as a trader. Also, your trading days will not be the same. You will make profits and losses on a daily basis. Therefore, it is important to take time and reflect about your trading days. You should reflect about your successes and failures. Doing this will help you make corrective measures if you made mistakes during the day.