Cultivating an effective Trading Discipline

Cultivating an effective Trading Discipline

How have you been placing your trades? Have you been jumping into trades based on what your friends tell you or based on an analysis reports that you received? Have you done your homework before you entered a position?

These are very common situations where people tend to hurry themselves into a trade thinking that they will miss out on a golden opportunity if they do not do so. Almost everyone would have gone through this phase during their early trading days. It takes a while to cultivate some form of trading discipline to hold yourself back and think through if a trade is worth while entering. Cultivating an effective trading discipline will greatly improve your winning probabilities, and these habits will make you more profitable than ever.

Here’s a few tips to start off.


Create a routine

If you have created a portfolio of stocks for monitoring, develop a daily routine to check on them. You may choose to do so at a certain time of the day. It can be early in the morning while you are having your breakfast, while you are traveling on the train to work or in the evening after your work. What you will be reviewing on a daily basis includes the following.

1. Overall Market Sentiments – You can do so by glancing through financial news especially on stocks markets. Set some bookmarks on your browser and very quickly look through various main pages to see if there are any big news that will have some significant impact on market movements.

Take for example, you have fully invested in the stocks market and have all long positions. The first thing you will be interested watch out is major news that can cause a big correction or market co llapse. This includes shocking news like war, news on market slowdown, interest rates adjustment, banks going bankrupt etc. Next will be news that affect the segment of the stocks that you have invested in. In the recent price war on oil, oil related companies were badly hit and some of the oil related companies lost value in their stock prices by as much as 30% in a short couple of days. This habit can save you get out of a stock market crash early or prevent you from entering a position at a bad time.

2. Stock charts – Since you have created your portfolio of stocks for monitoring, you should be glancing through all the charts together with the daily prices to monitor unusual movements. Pay even more attention to the stocks that you have entered positions.

You may think this is a no brainer, but if you are working full-time, this can easily slip off your daily routine.


Preparing for your trades

This usually takes a little more time to do some research and analysis. The trigger can come from multiple sources. Primarily these triggers will be coming from the trading strategies that you have developed. Your daily reviews on the stocks in your monitoring portfolio will be the first point that highlights that a possible trade can be executed. However, another routine that needs to be developed is to always do some form of analysis before you take on any unnecessary risks.

Key Areas that You Need to Check

Create a check list of things that you will want to check every time before you enter a position.

1. Overall market performance – Is it trending up or down? Is the market due for a correction? Check this with the stocks index of the market you are trading in. Do a check on major markets as well that influence your stock market.

2. Market segment – Performing well? Generally, when a segment is doing well, most stocks in the same segment will be moving up together.

3. Fundamentals – This would have been covered if you have done so before putting the stock into your monitoring portfolio. However, there is no harm to re-check again.

4. Entry point and cut loss point – What is going to trigger the entry, and if the trade turns sour, at what price should you exit your position. Cutting loss is painful and it takes some training to get your mind into the right psychology to be able to tell yourself that it is the right thing to do. Letting your loss run seriously puts your whole hard earned savings at risk.

5. Profit taking – Set some rules on when you will start profit taking and when you will exit your winning position altogether. This prepares you well ahead of time and locking in your profits will be maximized.


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