For anyone who is trading/investing, it is so important to first develop your plan. Quite often we start with trying to figure out what to trade? What will go up and now!
But really the key to becoming succesful as a trader is to have answers to the following.
How much will I allocate to my trading?
What will I risk per trade?
What will I be trading?
How will I decide when to Enter?
How will I decide to Exit? (both to capture profits and prevent large losses)
How will I calculate the proper entry and exit points?
How will I measure success?
After teaching trading and investing for over 15 years, I continually stress these very points. Another key aspect is being wrong. Really good traders who try and capture trends are probably only correct at best 50% but more likely only 35%-40% of the time. What matters though is keeping your losses small and letting your winners run.
Now to illustrate how wrong with the proper money management a trader can be consider this:
10,000 dollar account and risking no more than 1% on a trade. Out of 10 trades you had one that trending and made 10 percent which happened to be the last one. All others were 1 percent losers. (rounded up or down on all)
Acct Value Loss/Gain Trade#
9900 -1% 1
9807 -1% 2
9703 -1% 3
9606 -1% 4
9510 -1% 5
9415 -1% 6
9321 -1% 7
9228 -1% 8
9136 -1% 9
10050 +10% 10
This is a 10% win percentage but the trader kept losses small and winners run. Too often we hold our losses only hoping to get somehow back to breakeven. This is SO important for everyone to understand.
So what is the best system or approach technical vs fundemental?
We I make the case that technical analysis is superior in generating actionable entry and exit points. But I'll save that for next time.