Remember that keeping the big picture in mind is important. Big picture shows you that that there are times when you make small profit, times when you take small losses and also times when you take big profits. Keeping the big picture in mind helps you to remember that one losing trade is just one losing trade and with a good system in place you will still be winning on the big picture over time. One trade is one of many trades you make and while you should make every trade like it was your most important one, one trade doesn’t matter that much. But it matters within the many trades.
Before starting to trade, put together your trading plan – which systems you use to trade (patterns, candlesticks, complete systems, etc). Now set your general stop loss and take profit points. By general I mean that they are flexible within some range. Eg. Your stop loss can be 10 points to $100 depending on the exact trade. So while you do need to have a general plan available, this plan can’t be too rigid, but rather some flexibility is always good. Note though that „some” really means some. It should still protect you against big losses and lost gains. And of course, once you have the plan, stick to it.
Diversification vs NO diversification – while most experienced traders would tell you to diversify your portfolio – the less you play with the less you can lose with your trade. That’s right. But it also means that the less you play with the less you can win. So it’s rather a tricky question. One thing is sure – you do need to keep your losses the smallest possible. Other than that there’s lots to think about.
Something that could help you trade with less emotions might be to think of points instead of money. One point could equal $1 or $10. Or just forget all about the exact $$$ and think of %, your risk/reward ratio and the bases of the decisions you have made.
More thoughts to come soon...