If you are trading randomly without any strong strategy, your chances of long-term success are very low. We can get an edge in trading by systematic trading of a winning strategy. There are some questions to ask before Trading.
Trading with a good trading system allows you to win at the end of the trade. It helps you in risk management. It also helps to avoid bringing your ego and emotions into your trades.
Avoiding the trading system and following your own personal opinions can cause you big losses in trading. You will lose your all capital in the end, if you believe you are wiser than the majority of traders. These Questions to Ask before Trading let us manage risk and book profit.
Questions to Ask before Trading:
- Is this trade a good fit for my trading style? momentum trading, trend following, Swing trading, breakout trading reversion to the mean, or day trading? Is this trade consistent with who I am as a trader, or is this trade is solely based on my own greed fear?
- Before trading ask yourself, What is the size of the position I want to trade?
- Ask yourself, How much money I can put at risk? you should risk 1% or 2% of your trading capital?
- Find out the probability of going bankrupt based on the amount of money you are putting at risk?
- why am I getting into the trade now? What is the entry trigger at which you decide to enter the trade? Is this a calculated entry in my trading strategy?
- How will I book a profit from this trade? Is it better to use a trailing stop or price target?
- What price will I pay to learn that I was mistaken?
- What will be my stop loss based on the size of the position?
- Will my ego be the hurdle to exit the trade, if my stop is hit, or will I be able to admit I was wrong and exit the trade? Is it possible to trade this position size while keeping my ego out of the trade?
- Ask yourself, am I risking the capital that I won’t blame myself or the market if I lose capital? Is my risk low enough for me to maintain control?
- Also, ask yourself, is it possible for me to risk this money, or do I will require this money for upcoming expenses?
- Is it my intention to remain disciplined? importantly discipline trading strategy is key to success.
- Am I sticking to my trading plan during the trade? because trading without planning is gambling.
In this article, we discussed a few reasons that we should ask ourselves before entering into a trade. Firstly, learning trading skills by actually doing it in the real world. Secondly, practice your strategy by putting in the necessary hours.