The secret to explosive trading profits is a good trading plan. You’ll definitely get nowhere without one. It’s common though to come across traders who lose everything while trading even if they do have plans. There are many reasons for trading failures but one possible reason is sticking to mythical beliefs.
One mistake that traders make is believing that there is a method that can automatically and magically provide perfect indicators and signals. They think that there is such a thing as a holy grail which can give them the luxury of full automated trading. Sometimes, the perceived perfect plan takes on the form of a black box system.
Black box trade systems don’t take a lot of brains to use. Some may not even bother trying to learn trading. If you have such a system, you only need to input a few basic pieces of information and let the program do all the work of analyzing the market. Undoubtedly, such a plan is convenient and takes so much less time and effort, leaving traders with a lot of spare time on their hands. This is what many investors prefer since they may have day jobs to perform. Before you buy your own boxed plan however, you should know that there are disadvantages to such programs.
Any inflexible system that you use straight out of the box takes a lot of the element of control away from you. This includes your control over the all important factor of risk management. With an instant program, you are left with default guidelines and there is little to no opportunity for you to set the levels of risk that you are most at ease with. With everything on a plate before you, you don’t have much of a choice but to take what is served. The problem is that when your standards are bypassed, you might end up having to part with cash you will not want to lose. In a sense, black box methods can make you lose in an upsetting way.
Good traders often prefer to use systems that they can tweak to match their trading styles and risk tolerance. Part of the customization process involves identifying the maximum single trade allowable loss, capital availability and time available for trading. You are at a better position to profit from trading if you make a cautious assessment of these factors from a personal perspective.
A custom plan is thus more than an organizing tool. It is your passport to a more logical state of mind. Logic is what you need to ensure that your emotions don’t get the better of you when you trade. You won’t have to deal with fears and doubts when you have a good plan in place. Simply put, your custom system is your main source of trading confidence.
You will get even better results if you take the time to back test your custom strategy. Various back testing tools can run your method into simulated trades using historical information. You will then be able to tell if your strategy has a high chance of performing well if it were used in the past.
A trading plan is definitely your best weapon against trading failure. Do remember though to pick a plan that doesn’t fit into the category of black box systems.
