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Develop your trading plan

As a trader, in order to consistently take profits from the market you will need to adopt habits that allow you to make the best out of each trading day.

Below is a checklist of aspects of your daily practices that you might need to think about.

Assess your skills

Before trading you must first decide whether you are really ready to trade. Does your system work? Have you tested it through paper trading or with a small position size? Are you able to follow signals without any hesitation? If you can answer yes to these questions then you are some of the way toward becoming a successful trader.

Be mentally prepared

To trade effectively you need to ensure that you are psychologically ready to do battle in the markets. Ensure that you can recognise when your propensity for your judgement to become clouded through the more commonly felt emotions amoung traders. Greed, fear, regret and elation are just some of the emotions that have been responsible for leading traders to abandon carefully considered trading plans and as a consequence fail in their endeavours. Allow yourself to rest sufficiently between trading sessions, get a good nights sleep, consider taking time out from the market’s if you don’t feel emotionally prepared to trade. If for any reason you are not entirely focused and ready to trade, you could lose out, it is therefore vital that you always bear in mind how you feel before you trade.

Work within pre-determined risk levels

You must decide before you trade how much of your portfolio you should risk in any one position. This could vary between 1% and 5% depending on your risk preferences. This means that if you lose this amount you get out and stay out for the day if the markets don’t appear to follow in line with what you expected. Deciding upon a course of action that allows you to live to fight another day is the best strategy when markets go against you.

Set your targets

Before you trade, it is useful to set a realistic profit target for yourself, together with desirable risk/reward ratios. For example, some traders will not take a trade unless the the postential profit that can be acheived is at least three times greater than the risk, that means that if you set your stop loss at one pound per share your desired level of profit would be £3. It is good practice to regularly assess your weekly, monthly and annual profit targets on your posrtfolio.

Be Prepared

Its a good idea to keep an eye on what is going on around the world before you trade in a particular market. What are similar markets doing across the globe? What indication do index futures give about the possible forthcoming directions the markets could take. Keeep an eye on the economic calendar, what economic or earnings data is due to come out and when might this be? When an economic report of some significance is due to come out its often better to step away from the market and come back in when the news has been digested. Remember you will stay in the game longer if you act as the professinals do and not take unecessary chances with your money.

Before trading

In the morning before you begin to trade, reboot your computer to clear the resident memory, calculate and label the major and minor support and resistance levels on your trading platform and set alerts for the key entry and exit signals which your trading system identifies. It helps to keep your trading area tidy and dedicated for that purpose, the area in which you work should allow you to concentrate on the job in hand without offering unnecessary distractions.

Know when you should exit a trade

Professional traders lose more trades than they win, you should remember that you cannot always be right about the market. While it is natural that most of your efforts will be concentrated in looking for buy signals you should really pay attention as to when and where you should make your exit from a losing trade. When the markets go against you and the losses begin to mount, know when to cut out, setting stop orders when you take your position will help you with this. Many traders find it difficult to exit trades and end up losing more, if you maintain a strict discipline about when to exit a position in the long run you will end up gaining more. Write down what your stop loss should be if a trade goes against you, however if the trade goes in your favor then you should have a predetermined level to exit the trade. In short, know beforehand when to take your losses and when to take your profits.

Know when you should take a trade

Successful systems are often complicated but it should be simple enough so that you can make a snap decision. If you have a plethora of conditions that need to be met before you can enter a trade then the chances are high that you will not enter a trade very often. The type of entry signal you will have is very much dependent upon your individual strategy. The key point for you to remember is to know how to recognize these quickly so that you can make the most from your strategy.

Keep good records

Good traders are also good record keepers. When you win or lose in a trade it pays to know exactly why this may have happened so that you don’t repeat unnecessary mistakes. Its a good idea to review the details of your trades including the entry and exit points, the support and resistance levels, the daily opening range and the market opening and closing prices. You will find that all these details are recorded for you automatically on the trading platform in your Index Pips account. Let reviewing your trading patterns in addition to the outcomes become part of your daily routine. Some traders keep a trading journal that allows them to record the why and how behind the profits or the losses. You will be surprised by how much you can learn when you review these at a later date.

While there is no guarantee that any trade you make will ever make money, the bottom line is that your chances will be greatly improved if you are confident in executing the system you have chosen and that you can make trades without doubting the decisions you take. Having a plan will allow you to do this.

Trading Tips presentation

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