Trading Disasters - Part 2

Part 2 of trading disasters and how to avoid them:

5. Don’t Hope, Wish or Pray
Hoping, wishing or praying will not turn a losing trade into a winning one.
If you ever find yourself in a situation where you start to hope, wish or pray for a trade to turnaround then here’s another 4 letter word to work on: EXIT! Close the trade and move on.

6. Don’t Have a plan – and then ignore it.
If you have spent weeks, months or even years developing a trading plan then why would a decision made in a split second whilst you are in a trade outperform that plan?
If you have a plan, stick to it rigidly. You know that losing trades will happen but you also know that your winning trades will more than outweigh the losers. It’s very easy to deviate from a plan when it seems to be producing a string of losing trades. If you’ve ever been there then you’ll know that the moment you decide change the plan is the moment that the original plan comes good.
Give your plan long enough to statistically provide evidence that it’s reason for being has changed – one or two losers doesn’t mean the plan has failed.

7. Don’t just have a good entry plan but no exit plan.
Where you exit a trade is just as important as where you enter it. If you buy to enter then your exit should be where that buy signal is no longer valid. This could be after the market has moved considerably in your favour – would you still be a buyer at this price? Or if the market has moved against you and invalidated the buy signal.
Before you enter a trade know where you will take profits and where you will stop the losses. Make sure you stick to the plan and adhere to this simple trading rule.

8. Never fall in love with a trade.
If you research a trade thoroughly before entering it then it can be easy to become attached to it! Just as if you spent a long time with another person and they are kind to you then you grow fond of them and want to stay with them. It’s human nature to want to be with the ones that love us. However, when that relationship turns bad are you strong enough to get out?
When a trade goes in your favour it’s easy to stay with it and enjoy the profit it’s providing you. However, when it turns against you do you forgive it or dump it? That trade will punish you if you become too attached.