It’s clear that having a good idea of how your trading plan will fare under real market conditions is a crucial aspect of success. In order to have that idea, practice is essential. You may have heard the phrase, ‘Practice makes perfect.’ While that may not be completely true, it is undeniable that practice does lead to better results.
Professionals never start off perfect - they go through the same learning process as everyone else, and becoming a profitable, professional trader will involve a lot of practice. A good example is professional athletes - they may start with some talent, but their real skill only develops after hours and hours of reviewing their past performance, and noting where they can improve.
Market conditions are constantly shifting, but you should always maintain a consistent, disciplined mindset, so that you can take advantage of the situation no matter what the circumstances are. Your trading plan may have the rules for noticing profitable opportunities, but it is the confidence and trust in your plan that really separates skilled traders from amateurs.
By practicing your trading plan and analysis, with a demo account or virtual trading, you can develop the skills necessary for profitable trading in the real market. You may even notice that your trading plan falls short, or misses some opportunities. If you notice that your trading plan is not generating the results you want, or if you had a gut feeling that you then ignored, it might be worth taking a look at your set rules, and making them more flexible going forward.
Keep A Trading Journal
One of the best tools for traders, especially those just starting to trade, is a trading journal. A trading journal is simply a record of every trading decision you’ve made over some period of time. Having a trading journal, as opposed to not, will help you review your past performance and your decision making process and identify potential strengths and weaknesses of your plans.
For example, you may notice that you tend to panic and exit trades early at the first sign of a retracing, missing out on an unexpected upswing, or that your trailing stops are set too late and that you’re unintentionally taking a greater loss than necessary.
It can also make you more confident, by giving you an objective look at what you’re getting right. As we’ve said before, confidence and discipline are essential for a trader, and being able to look back at your past decisions and see that you’ve made the right calls will often help to offset negative emotions from losses, especially when you start to tilt or doubt your trading plan.
Always remember that a single loss or two should not be cause to abandon your whole strategy - give it time, and keep track of your decisions at every step of the decision-making process, and only then should you start making changes.
Developing the habits of staying calm takes practice, like everything else. However, it is one of the more important habits for a trader, and in life, to have. By keeping good track of your decisions and trading plan via a trading journal, reviewing your performance at pre-defined intervals, and staying calm when you take a loss, you better develop the skills needed to stay profitable. Once this process is natural, you’ll find yourself reaping far greater rewards.