Cutting Out Bad Trading Decisions

Filed under: Learn Forex Trading |

Screen shot 2013-07-30 at 09.44.59Today, I discussed a bad trading decision that I made and how I could have managed this trade better. This was a bad trading decision, and one that could have easily been avoided by having some strict rules to follow. This is something that I used to have, and that I will go back to again now that I have made this bad trading decision.

 

I moved my target to my entry level, and while this is an acceptable move if a trade has been moving sideways for a number of days, and it is tying up your capital, I made this move far too early (on the second day). A simple rule to avoid such errors could be to: “Only move a trade to breakeven if you are in profits of two times your initial risk, or if the trade is in negative territory and has been trading sideways for over three days”.

 

A number of other trading rules could also be established. This could include:

 

1)    Never take a trade with a risk-reward of less than 1:2.

2)    Never take a trade without a price action confirmation at a significant support/resistance level.

3)    Never trade against a dominant long-term trend.

4)    Always have a target at a logical level (before a support/resistance zone).

5)    Always set a stop loss a few pips away from the high/low of the latest move.

6)    Only move a trade to breakeven if you are in profits of two times your initial risk, or if the trade is in negative territory and has been trading sideways for over three days.

7)    Once in profits of over two times the risk, move the stop loss in a discretionary way if deemed necessary by moving it to a few pips above the high of the previous candle.

 

These are a good set of rules, and ones that could make good profits over the long term. You can tweak this and make your own rules as well, but the point is to stick to your rules, and this will help to cut out bad and emotional trading decisions that have no consistency.

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