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3 Things To Do Before Every Trade

As traders we are always searching for a money making trade. Often, a trader will look for hours a day in search of the next winning trade position. Sometimes traders will actually create a setup in their minds just to be in a play. In other words, they will force a trade for the sake of being in a position or to have action in the market. In the early years of my career, I did this myself and the result was almost always, not a good one. When I gained more experience I realized that forcing trades was simply gambling. If I was going to survive in the trading business then gambling was not going to pay the bills. These days far too many people associate trading with gambling, however, they are not the same thing. The big difference is that a good trader has the odds in his favor on every trade, even on the trades where he takes a loss. A gambler never has the odds in his favor and will rely on luck and hope to win and make money.

I always make sure I have the odds stacked in my favor before taking any position in the market. This is the first thing that every trader must do. You can do this by learning to read and understanding chart patterns. This takes time to do, but it sure beats gambling on stocks.

The second thing that every trader must do before taking a trade is to know where the trade has gone wrong. In other words, where is my stop loss going to be if the trade goes against me. Unfortunately, it is so common to see traders fight trades endlessly only to loss way more money than they should have because they could not abide by a stop loss. If you cannot find a stop loss on the chart then a good rule of thumb is to risk just 10% on any one trade. If the stock goes against you by 10% then just close it out and take the loss. Having a stop loss is probably one of the best rules anyone can follow.

The third thing that every trader should do before every trade is to know where his/her targets are. You must have targets for everything you do, if you are to be successful in life and this also includes trading. Before I even enter a trade I know my upside objective. This rule should be implemented by all types of traders including day traders, swing traders and even longer term position traders. I like to have two targets in place. When the first target is achieved then I move my stop loss to break-even and look for the second target to be reached. Sometimes I will have to adjust my targets if the chart changes, but that is what a good trader does when things change.

If you are not doing these 3 things before every trade you might want to start right now. Test it out and you will likely start to see much better results. Remember, the trading business is a marathon and not a sprint.

 

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