Like with anything we do, traders can choose to practice good habits that help improve their results, or they can succumb to bad habits that will work against them. In trading, some bad habits can revolve around laziness, for example, no longer using your trading journal. Other bad habits like revenge trading or overtrading can wreak havoc on your trading account. If you want to avoid bad habits while practicing good habits that will improve your balance, take a look at the 5 good trading habits we’ve listed below.
Habit #1: Prepare Beforehand
Before you even think of getting started, you should have a detailed trading plan and strategy picked out so that you know why and when you’ll trade. With these handy, you’ll know that you’re making decisions based on your comprehensive plan, rather than only playing chance. This can also help you to avoid falling victim to some common psychology-related trading issues as well as making self-biased trading decisions. In addition, you’ll want to put some more time into preparing by checking charts and economic events, keeping up with the news, researching important topics, and so on. It will only cost you a little time to have the peace of mind that you are well prepared to start each trading day.
Habit #2: Use Stop Losses
If you think that you’re never going to have a losing trade, then you thought wrong. Even the greatest traders of all time have had a bad day along the way, so don’t make the mistake of thinking that you don’t need to set a stop loss. Stop losses can be widened, tightened, and adjusted to ensure to take more control of the amount that you can lose on each trade. Of course, you’ll enter each trade with confidence, but setting a stop loss simply ensures that you’re protecting yourself from losing too much money if the market moves against you. Traders that skip this step in the beginning usually learn the hard way once they lose a lot on one trade or blow their account.
Habit #3: Devote a Specific Time to Trading Each Day
You don’t have to sit in front of your computer 24 hours a day, but you should set aside a certain timeframe each day that’s just for trading. During this trading window, you can cut out all distractions, including background noise. This good habit is extra beneficial if you trade during your most productive daily window, as some of us are more productive first thing in the morning, while others can think more clearly around lunchtime or into the afternoon. You can also avoid feeling burnt-out by ensuring that your trading window isn’t too time-demanding.
Habit #4: Keep a Journal!
How will you know what’s going right or wrong if you don’t keep up with your trades? Sure, you might have a general idea of whether you’re making money or losing it, but a trading journal can tell you so much more than that. If you want to be able to pinpoint problems, see where you’re making improvements, know where your strategy is working perfectly, and so on, trust us – you need to keep a trading journal. Sadly, some traders begin with one but stop using it after some time, either from laziness or because they become confident that they don’t need it anymore.
Habit #5: Figure Out What Works for YOU
There are a lot of different strategies out there and it’s easy to get swept away in thinking that one that has worked for a colleague will work just as well for you. This doesn’t mean you shouldn’t take advice from other experienced traders, only that you should realize that your trading style may be completely different from someone else’s. There are enough strategies out there that you can avoid choosing one that’s too difficult or confusing, that requires more time than you have, that doesn’t work with your schedule, etc. Instead, spend the time searching for a plan that will work for you perfectly and feel that unnecessary stress melt away.