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Wednesday, 4 January 2017

Live Trading: Don't get steamrolled

Lets say you have been demo trading for a couple months and you strongly believe that you are ready to go live and risk your own money. However, when you start live trading everything seems to be going different from demo trading. How do you avoid this? How do you ensure that you don't get steamrolled by live market volatility? How do you suppress your emotions so you can trade successfully?

There is a set of principles to follow to ensure your success. Continue reading to find out more.

Risk Management

The art of managing your money so you gain maximum returns while minimizing your loss. This statement encompasses the essence of what risk management is all about. It is recommended and should be taken as a principle of trading that you don't risk more than 1% of your trading account on any one trade. This will ensure that you don't lose more than you can afford to. Also ONLY enter trades that gives a risk to reward ratio of 1:3 or better, that means each and every trade that you enter in the event you win it should be three times as much if you had lost that trade. For example, if you enter a trade and based on your entry triggers your stop loss is placed where the possibility exist that you will lose $100 then your take profit should be at a point where you will win $300.

Risk management can be a tedious process but should always be done and ensure that you follow the principles:
1. Never trade more than 1% of your account on anyone trade
2. Always ensure risk to reward radio is always 1:3 or better

Trading Plan

This is where you outline all the steps you will take to complete a trade. The steps will involve
1. When to enter the trade
2. Why you will enter the trade
3. When you will exit the trade
4. Why you will exit the trade
5. How many trades you will make for each trading day
6. When will be your trading days (Look at it as a business and as such your business will need closing and opening hours)
7. How much you will put on each trade (Remember risk-to-reward ratio mentioned above)

Your trading plan should always be followed but it can be tweaked if any points for improvement are found while trading. You can consider your trading plan to be a good one when its success rate is 65% or higher. Having a trading plan is a key principle in trading and should always be adhered to otherwise the consequences can be costly.

Keep a trading journal as part of your trading to ensure that you can revisit your trades and analyze them to find out where any adjustments to your trading strategy is needed.

Emotional Control

No one wants to lose their money, however, trading is extremely risky and more often than not traders lose. The aim is to always keep your emotions in check to ensure that you don't worry too much about losing and focus more and executing the plan.

Demo trading helps you to tweak and refine your trading plan but not necessarily to control the trade emotions. You can pretend that your trading your own money but it isn't quite the same. the real emotions kick in when you put your hard-earned money on the line. the fear losing kicks in and you start to make extremely high risk trades. the key in curbing this is to always stick to your trading plan no matter what. you will lose some trades which is expected but sticking to the plan means your overall statistics will show better.

It's always advised to keep emotions out of trading.

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