Traders need to know what type of trading will fit their personality and risk tolerance. Some traders are patient and make excellent trend followers others enjoy the action of day trading. Some want to spend all day in front of the screen others do better to simply trade the open and close. One trader may be able to handle a 20% drawdown in pursuit of out sized returns while others may quit trading at the first 10% drawdown. It is crucial that we know or strengths and weaknesses as traders and do more of what we are good at and less of what we are bad at. We need to find that trading method that we have complete confidence in for robustness and faith in ourselves for following its trading plan.
Know your market
We need to do our homework on the market we are trading. We need to know its historically price patterns and volatility. We need to have understanding of whether it tends to trend or stay range bound. What our markets recent daily trading range is and the long term historical high resistance and support levels along with the recent support and resistance levels on the chart. We need to be a historian of our markets price action.
Know your strategy
Being a master of our specific trading strategy and time frame can be an edge over other traders. It is much more profitable to focus our time, research and energy on one strategy. Successful traders usually are not a ‘Jack of all Trades’ but instead the master of one. It is dangerous to drift from one strategy to another, a day trader holding overnight or a trend follower to start day trading usually leads to losses. It is better to follow our trading plan through all market environments which may involve doing nothing and waiting through some of them.
“I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick 10,000 times.” – Bruce Lee
Know your limits
We have to know how much ‘heat’ in trading we can handle before our stress overtakes our trading plan. Traders have to build up to larger and larger position sizes, sizing up too quickly can lead to uncontrollable fear and greed that clouds good judgement. We can not put ourselves in situations where our ego has to prove we are right to an audience of other traders, family, or friends. There is more to life than trading it is important that traders diversify their lives and not forget why we do this. Health, family, friends, and recreation are just as important to a trader as the work. If we know why we are trading the ‘why’ can generate the passion we need to get to the ‘how’ and keep us going through setbacks.