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If you ask any successful trader, they will tell you that they have a trading strategy and they follow it very well. In this article I will show you the importance of having a trading strategy and the importance of following the trading strategy.
Most occupation have a plan.
If you are an air pilot you have certain plans that you have to follow. If you do not have a plan, then how can you get to the destination? How can you be safe?
The reality of trading and dabbling in the stock market is almost 90% of the people who dabble in the stock market lose money.
And I believe that they lose money because they do no have a plan.
The reality of trading is this.
You will not make money every trade. You might win some and lose some.
If you find a 70% success rate trading strategy, you still have to deal with a 30% loss.
But if you keep on doing this day in day out month after month, you know that your trading strategy will make you lose 30% of the time and make you win 70% of the time.
Each trade you lose $100,000.
Each trade you make $100,000.
So at the end of the period you will make $700,000 and lose $300,000. That will be a net $400,000 profit.
Then you have an edge.
The problem with most people is they jump from one strategy to the other. So how can you measure your performance?
If you can find a trading strategy that has a risk to reward of 1:2 then you know you will make money in the long run. That means for every $100,000 you stand to lose, you can make $200,000.
Combine it with a winning percentage of 70% you will make more then you imagine. I will let you do your own maths.
Emotional trading is one of the keys to losing for many people.
Sometimes they enter not because they have a setup. They chase the money instead of the setup.
And that will make you lose money.
If you have a trading strategy, it will help to keep your emotions in check. You know when to enter, when to exit, what stocks to chose and what stocks to avoid.
I think the key to success in any profession is to be very very disciplined.
A trading strategy will help you to do that.
But you must follow the trading strategy and not deviate from it.
When there is something to do, then trade. When there is nothing to do, do nothing.
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