Without a crystal ball or some other clairvoyant lens into the future, you can’t expect all (or most) of the changes in the market. Still, you have to be providing a steady income if you want to make it as a professional trader. In a market environment full of uncertainty, what tools can we give traders to dominate risk?
Eliminate the gambling factor
The first step in dominating risk is to accept that it will always exist and that it needs to be managed. Risk management will greatly help you reduce the gambling factor from your trading and ultimately give you a better edge in how you operate in the turbulent uncertainty of the market.
Luck is when opportunity meets preparation
It’s essential to define a work plan that is open to surprises and unexpected events. You also have to develop mental tools and self awareness in order to create and fine tune a unique trading method and routine that will help you achieve the utmost control over uncertainty.
Conceptually, it’s not hard to imagine a scenario in which your brain is tasked with completing a rudimentary set of actions in response to an encountered risk. In practice, it’s much harder to implement and follow. Simply, when something needs an immediate adjustment, you need a multi faceted, quick plan of action. The longer you need to think, formulate, and implement a response to a rough patch, the more you open yourself up to adverse trading event.
Once you’ve developed plans for a potential negative scenario, it’s important that you continually remind yourself of all of the levers that need to be operated in such an instance. If these are all in place it should dramatically reduce the risk and lower the amount of gambling you’re partaking in. It’s also relevant to any trading style that you might be using. There are no trading styles in existence that do not need a well rehearsed contingency plan.
Execute your action plan
The first step in any such emergency plan is there must already be a solid trading plan in place. This trading plan is meant to give you concrete rules and guidelines to follow. It offers a map of events that might occur in the market, custom tailored according to your analysis style. Spend time on it, research, and come up with a very finely detailed plan.
Push your entry deeper inside the stoploss zone
The next part of your plan should be to limit your entry to the lowest risk probability entry. It’s a hard pill to swallow because you’re going to lose some entries (some might be great), but the long term reward will be even better. If you only take the best probability trades in terms of low risk it actually benefits you in the long run. This technique gives you a highly preferred risk reward ratio and faster conviction if your trade is right or wrong. This also means that you spend less time in the negative zone which will build your confidence and make you a better trader. Who doesn’t want to spend more time on the profitable and more comfortable side of the action?
Take a moral boost
If you follow these concepts, it will greatly increase your confidence and boost your sense of ability to dominate the market. Potentially, when you become hooked on this good feeling of being on the positive side of the market, it will also reduce your tolerance for losses.
Having a high risk tolerance is wrong
Many amateur traders can take losses for a very long time because of a mental fight with the concept of a steadier earnings scheme. They’ll go all in for the losses just on a whim that the market will suddenly change directions and bring them a windfall. Instead, if you train yourself, you should be addicted to the successful side. This will reduce your tolerance to those losses, which in turn will push you to greatly reduce your risk and eliminate your losses. Never view losing a trade as failure. Failure in the context of risk management is not sticking to your trading plan. It’s within that plan where you need to define what a loss is.
Love your stoploss when it is within your plan
While defining losses are for each individual trader to determine, a few universal ways to achieve the lowest risk probability entry are to be very patient and to wait for the other conditions present in your plan to be present. It’s important not to take any shortcuts here and, as stated earlier, to be OK with missing a few trades. Keep remembering that it’s going to happen because those trades weren’t in your plan.
Remain attentive while in a trade
Once you make a trade, don’t think your work is over. Monitor the trade constantly. It’s not set and forget because the market is always changing. Once you enter, you have no control over what the market will do. You should always be open for the market to show you differently. You have to always be analyzing. It’s always a good time to look at different angles – knowledge that can add to your ability to read what’s going on. This behavior will keep you mindful to the trade and not to develop any distance from the trade. Live the trade, watch it grow, and nurture it. Always be open minded and prepared for an event contrary to your thinking or planning.
Never be locked on your pre-trade analysis bias
From a psychological standpoint, don’t try to reason with your analysis just because you entered the market. Don’t try to convince yourself that a past move was good. Focus on the current reality and monitor the trade. Don’t dwell on past moves, don’t justify, and keep moving.
Be prepared for most possible scenarios
As part of your overall strategy, make sure you map market scenarios and make action items. Each trader has their own perspective through the prism of their unique plans. They should know how the market looks through their prism. They should map the market through their trading analysis and give an action plan for each of these scenarios. When a time comes when you’re in a trade and you have to act fast, you have to have a quick execution. This means almost no thinking, no formulating, just acting according to the feel and predetermined plan.
In order to act fast, have an execution checklist and once executed, regardless of the outcome, be happy because it was applied successfully. The plan can be adjusted after the event but the pre-plan has to be trusted. Otherwise there will be no tools available in a crisis and you’ll be tempted to make the wrong decisions because you’re not prepared in the event of a quick decision.
Secure your winners
One of the remaining risk dominating methods available to you is securing runners as soon as possible. When you have a very good trade, try to secure it. Don’t risk a hanging stop loss. When you have a winner, don’t let it become a loser. A condition for this would be that when the market shows you that it has gone through the accomplished wave that you were in and it’s in the next wave, only then can we secure your entry and lock your profit. Bank out some money from the winner and then let the rest of the provisions run and give you a bonus or extra profit.
Convert on humble targets
Lastly, take modest profits. You should be humble and take modest gains in order to reduce the exposure you have in the market and to get some money back out into your account in order to cover your next trades. Improve your cost events and you’ll experience more events of success and pleasure because you’re taking a positive feeling and putting a tangible profit into your pocket. This will eventually build more satisfaction and confidence as you continue along in your trading career.
Retain a steady profitability routine
Always remember that because you’re trading as a profession, you’re here to make a reliable workspace for yourself in order to provide a steady income. Whenever the market gives you something, take it and reduce your exposure and risk. Work hard to retain a steady profitability routine. The market is constantly moving up and down, with many traders waiting for a bonanza. But you can build a career with more safety and guarantee. Work on the market pulses and don’t let your desires get in the way of reasonable and rational moves. The satisfaction of being disciplined and sticking to a plan can be immense in this line of work.