In the today's post, we will discuss how trading is structured, and I will share with you its 2 key milestones.
Trading with its nuances and complexities can be explained as the interconnections of two processes: trading rules creation and trading rules following.
1️⃣ With the trading rules, you define what you will trade and how exactly, classifying your entry and exist conditions, risk and trade management rules. Such a set of consistent trading rules compose a trading strategy.
For example, you can have a following trading plan:
you trade only gold, you analyze the market with technical analysis,
you buy from a key support and sell from a key resistance on a daily, your entry confirmation is a formation of a reversal candlestick pattern.
You set stop loss above the high/low of the pattern, and your target is the closest support/resistance level.
Here is how the trading setup would look like.
In the charts above, all the conditions for the trade are met, and the market nicely reached the take profit.
2️⃣ Trading strategy development is a very simple process. You can find hundreds of different ones on the internet and start using one immediately.
The main obstacle comes, however, with Following Trading Rules.
Following the rules is our second key milestone. It defines your ability to stay disciplined and to stick to your trading plan.
It implies the control of emotions, patience and avoidance of rationalization.
Once you open a trade, following your rules, challenges are just beginning. Imagine how happy you would feel yourself, seeing how nicely gold is moving to your target after position opening.
And how your mood would change, once the price quickly returns to your entry.
Watching how your profits evaporate and how the initially winning position turns into a losing one, emotions will constantly intervene.
In such situations, many traders break their rules, they start adjusting tp or stop loss or just close the trading, not being able to keep holding.
The ability to follow your system is a very hard skill to acquire. It requires many years of practicing. So if you believe that a good trading strategy is what you need to make money, please, realize the fact that even the best trading strategy in the world will lose without consistency and discipline.
