Risk Management: Planning trades and Executing strategies
One of the biggest problems a trader faces is the bridging gap between Trade planning and execution. Risk Management is an essential but often overlooked prerequisite to successful active trading. Young traders get carried away with a few successful profits and neglect to manage their profits which cost them everything with one small mistake. The real trick lies in planning your trade and executing your strategies. That is what separates the experienced traders from an inexperienced one.
Planning your Trade:
Successful traders like myself often use this phrase, “Plan the trade and Trade the plan”, indicating that planning ahead can create the difference between winning and losing. A trading plan is an organized approach to executing a trading system that you’ve developed based on your market analysis and outlook while factoring in risk management. No matter how good your trading plan looks, it won’t work if you don’t follow it. Just having a plan is not enough, implementing it is also important for your survival in long run.
Stop loss (S/L) and take profit (T/P) points are two ways in which traders can plan ahead of their trade.
• Stop loss- point is the price at which a trader will sell a stock and take a loss on the trade.
• Take profit- point is the price at which trader will sell a stock and take a profit on the trade.
Benefits of Planning Trades:
• It makes trading simpler.
• Reduces unnecessary stress.
• Possibility to gauge your performance and room for correction.
• If adhered strictly then it reduces the number of bad trades.
• Will help you to trade outside your comfort zone without much worry.
Developing and Executing of trade strategies:
A well-considered strategy includes a well-considered investing and trading plan. Ideas and best practices need to be researched and adopted then adhered to. Once this strategy is executed, trading positions are monitored and managed, including adjusting or closing them as needed. Let us read more about how to develop and execute a strategy.
There are many types of trading strategy which mainly based on technical or fundamental. Technical trading strategies rely on technical indicators to generate trading signals. On the other hand, Fundamental trading strategies take fundamental factors into account.
How to develop a Trading Strategy:
There are several different components to an effective forex trading strategy-
• Selecting the market- Trader must choose which currency pairs they want to trade in.
• Position sizing- Traders must determine how large each position is to control for the amount of risk taken in each individual trade.
• Entry points- Trader should develop rules on when to enter the market.
• Exit points- Trader should make rules on when to exit the market.
• Trading tactics- Trader should have set of rules on how to buy and sell currency pairs.
Execution of Trading Strategy:
• Stay in touch with the market- Doesn’t matter whether you’re a technical or fundamental trader, you need to keep yourself updated with the market once you have made set your trade.
• Be patient- Once your plan has been made, stay patient and believe that it will work. Being restless will simply build more pressure and make you take the wrong step.
Bringing trade planning and executing strategy sounds an easy task but it is not always easy. One has to be disciplined and patient. Make sure that you know exactly how you will trade before you do, be confident in your strategy’s ability to perform.