In last Post we discussed about Trading Method today we will discuss about the remaing 2 mantra
- Money management That is simply how much you trade with, stop loss points and how much you are risking in each trade.
- Traders Mind Set This for me is the most important thing leading to trading success, this can be described as being able to control your fear, your greed and having discipline overall to stick to your system regardless of what the next guy is doing.
Proper money management makes controlling your Mind and emotions significantly less difficult, We generally use the age old adage Trading Within your Limits. You need to trade within your limits, You Broker can provide 10 to 30 X leverage but are your mentally prepared to use even 1 X leverage. Trading on Leverage is walking on sword one mistake and you blow your account. If you don’t practice proper money management, your mindset is probably not going to be calm and consistent enough to make money even if you’ve mastered your trading method.
Larry Hite, in Jack Schwager’s Market Wizards (1989), mentions two lessons learned from a friend:
Never risk a large chunk of your capital on a single trade; and
Always know what the worst possible outcome is.
The Opposite of above most of traders do and bust their trading account.
Another Important aspect is Taking out profit in regular manner
Whenever you have a great trading month where you take some large profits, it can be tempting to try to repeat this success the next day. Whenever I achieve my trading goal in my trading account I will take home 50% of my profit. Why do I do this? The answer is simple. When you take money out of your trading account, you protect your gains. Sure, it can be exciting to trade with more money, but you are also exposing yourself to additional risk. You may start trading wildly and making irrational decisions. Think of wiring out as paying yourself; you are taking a salary from the markets. This makes trading less stressful as well.
Traders Mind Set
If you do not have the proper trading mindset, the best trading strategy in the world won’t help you. I get emails from traders everyday who clearly have the wrong mindset for succeeding in the market. They ask me things like how much money they can make if they learn my trading methods, how long it will take them to trade full-time, etc. Most beginning and struggling traders think like this, and it’s this type of mindset, one of being preoccupied with how much money they “might” make, that literally primes them to lose money or blow out their trading accounts.
Successful trading is an art and a skill, Market will pay you if you have proper SKILL SET. When we have our real money on the line, it fires up our emotion, and the more money you risk, the greater your emotional responses to the market will be. Therefore, the simplest and most effective way to keep your emotions in-check as you trade and to make sure the “Mind” component of successful trading is working properly, is to manage your risk intelligently and logically on EVERY TRADE you enter.
If you follow these 3 mantras religiously trading success will come.