In trading it is very easy to get lost in the game.
You get your trading platform, you try to get some pips, and in the process you usually forget basic risk management practices.
Here are five daily habits that may help reduce your exposure.
1. Double, triple and even quadruple check your orders
E-commerce has made it very easy for traders to execute trades. However, due to the ease and simplicity of electronic trading over the internet, the chances of wrong orders also increase significantly.
Having a well thought out trading plan will be useless if you do not enter your orders correctly.
In May 2010, the financial market experienced a massive crash due to the “fat finger” event.
A trader in a large trading firm mistakenly sold $16 billion worth of futures contracts instead of just $16 million.
Other traders who saw it thought something big was about to happen, so they sold too.
This led to a collective intraday drop of $1 trillion in the US stock market. Needless to say, the trading company, as well as those holding the shares, lost a lot of money.
Double, triple and even quadruple check your order Very important in avoiding costly and unnecessary blunders.
Make reviewing your orders part of your routine. It will take a few seconds of your time!
2. Always have a trading plan
You would think that all traders would have a trading plan by now. I’ve talked about having a business plan many times in previous blog posts.
Unfortunately, A lot of traders still trade impulsively.
There are traders who trade entirely based on feelings and enter trades irrationally without thinking about it.
At the very least, you should have a plan about where to enter or exit your positions.
By doing this, you limit catastrophic emotional reactions to adverse price movements.
3. Securing profits in profitable trades
Another commonly overlooked risk management practice is to take some of your profits off the table while the price action is still in your favor.
I know it’s tempting to ride a trend with a full position all the way to your profit target, but… Taking out part of your position limits your exposure to potential volatility.
After all, the saying “The trend is your friend… until it ends” didn’t come out of nowhere, right?
Let’s take the STA strategy or any other measurement technique for example. Let’s say your trading plan calls for adding to your original position and moving your stop loss after a certain number of pips.
If you remove some of your position halfway through, you could end up with at least a small win even if the trend suddenly reverses on you.
4. Back out of the trade
Do you feel like you are in a commercial bind? Are your fundamental and technical analyzes more off than you’d like to admit?
If you said “yes” to these questions, you probably just need to take a short vacation from trading.
The good thing about staying out of the markets completely is that you are not emotionally invested in any position.
This usually allows you to reset market attributes and chart patterns and see them from a renewed point of view. And sometimes a break will help you realize what you did wrong in the last two trades.
So take a step back, try to resist the temptation to make pips for a while, and you will most likely come back with a renewed mind and a new and improved trading plan.
5. Withdraw your money regularly
While transferring a few thousand dollars into a multi-millionaire trading account is a great confidence booster in trading, it is still a good idea to withdraw some of your funds regularly.
First, extra capital usually exposes you to rash decisions such as trading larger positions or over-trading.
Unless your trading goal calls for increasing your trade sizes or the number of your trades, withdrawing some of your money is one of your best bets in reducing your risk.
Plus, haven’t I often told you that being consistently profitable requires your focus on the process, not the profits?
Take some from your navigator from time to time. take a vacation with your partner or friends; Buy yourself something luxurious, and enjoy the hard-earned fruits of your labor.
