“Plan your trade and trade your plan”
Contrary to popular belief, you do not need to know where the market will top and bottom to make money in the markets. In fact, that is where most people go wrong.
The best traders in the world realizes that neither they nor anyone else knows what is going to happen. Sure, everyone can point out tops and bottoms after the fact, but no matter what anyone tells you, no one can pick tops and bottoms consistently before the fact.
So how do you make money without picking tops and bottoms?
Successful trading is not dissimilar to any other successful business. Every successful business has a business plan and so do successful traders.
A trader’s business plan is known as a trading plan – it defines his approach to trading. A properly constructed trading system will leave no room for human judgment because it will define your plan, given any circumstances that may arise. It is a distinct set of rules that will instruct the trader what should be done and when to do it.
The importance of a trading plan cannot be overstated. Without a consistent set of guiding principles to govern your trading decisions, you will most likely hop from one trade to the next, impelled by emotions.
By not having a plan, you are planning to fail.
Most successful traders use a mechanical trading system. This is no coincidence. A good mechanical trading system automates the entire process of trading.
The system provides answers for each of the decisions a trader must make while trading. The system makes it easier for a trader to trade consistently because there are a set of rules which specifically define what should be done.
The mechanics of trading is not left up to the judgment of the trader. If you know that your system makes money over the long run it is easier to take the signals and trade according to the system during periods of losses.
If you are relying on your own judgment during trading you may find that you are fearful just when you should be bold and courageous when you should be cautious.
If you have a mechanical trading system that works, and you follow it rigorously your trading will be consistent despite the inner emotional struggles that might come from a long series of losses, or a large profit.
The confidence, consistency, and discipline that a thoroughly tested mechanical system affords is the key to many of the most profitable traders’ success.