Trading Psychology: Identifying Your Goals Is the Key to Trading Success
We all come into the world of trading with a very different idea of what to expect. Many are drawn to the idea of quick and easy profits, when in fact the reality is often far different.
I’ve often used the gambling expression, “a tough way to make an easy living,” and I think that is the truth of the matter when it comes to trading as well.
However, that is not to say you can’t achieve success. But that success will come only if you know what you are looking to achieve. From there you can start working towards those goals. For many new traders that goal might be something as simple as earning a second income or have some extra money to buy that new car or take a family holiday.
Whatever the goal is, you need to make sure it is clear. Then you can start working towards it.
Developing a Trading Plan
A trading plan can be a little bit of a boring concept to many new traders. They’re more interested in placing trades and getting involved in the action of the markets, rather than writing everything down.
A trading plan serves multiple purposes. It is a place where you can write down your trading goals. And it is a roadmap of how you might achieve them.
For example, you might want to make an extra $10,000 per year on the side.
From that point on, you need to identify a few things:
- How much money are you going to put into your trading account?
- How much are you prepared to risk on every trade?
- How much are you prepared to let your trading account drawdown before you reassess your strategy?
- Which pairs are you going to trade?
- What trade setups are you going to follow?
- What type of risk/reward are you going to allow for on each setup?
- How many days per week and hours per day are you going to devote to your trading?
Using Forex Signals
At FX Leaders we are big on trading signals. It’s a great way to start your trading career, as you get to follow along with some successful traders and see what they’re doing.
However, that doesn’t mean you can get away with not using a trading plan.
One of the great features of the new FX Leaders site is that you can download and analyse previous signals. All traders should look at the forex pairs, commodities or cryptocurrencies that are of most interest to them to trade. You can then analyze the results.
Do Your Stats
Get an idea of what the type of risk/reward is. How many wins or losses in a row you might be in for. What would the overall return looks like on an annualised basis. And compare that to a potential drawdown. Is that the type of risk you’re prepared to accept?
From here you can work backwards and assign a portion of your trading account to that pair, cryptocurrency or commodity. Make sure you have everything detailed in your trading plan so you know how to act in certain situations.
Then it is just a matter of refining things as they go along. And to make continual improvements.
You’ll be ahead fo 99% of other traders if you take this type of approach and know what you want to achieve.
If you’ve ever wondered if stop losses are hurting your returns and are really just a mental tool, you might want to check out my next trading psychology post.