Taking a second look at potential trades at times results in “why didn’t I see this before?”
For instance, what if you are looking at a market as it approaches a support area? Isn’t it reasonable to ask yourself, “If this market breaks through and I am long, what will I do?” Ask yourself how such an event would change the picture. If you have a position, will you still want to hold it? If you have no position, will this cause you to take a position opposite what was the trend? If it will, then why not place an order entry just the other side of that support area? Very often, when prices approach support from what has been a trading range, they are already in a counter trend within the confines of the trading range. That means a breakout of the trading range would be a continuation of a newly formed minor trend.
After a second look, I will put my work aside before looking at my charts again. Then I make a plan for the orders I want to place.
I make sure my trading platform is working. To do this, I issue an order I know will come back as “unable.” I also check to see if my phone line is working by making a call to my cell phone. In the event of an emergency, I want to be able to call my broker.
Another thing I do is to quickly check the news to see if there is anything that has come out or is reported to come out that might affect my trades. I want to know if any reports are due or any speeches scheduled that might affect the market in which I intend to trade.
I do all this before I enter a trade. But do you know what most traders do? They do their analysis after the trade is made. Too often, they do it when the trade is already going against them.
How many times have you entered a trade, and then said to yourself, “Oh no, why didn’t I see that before?” How could you have seen it if you hadn’t looked, and looked again, and thought about it, and then perhaps looked one more time?
Also, many traders do their analysis after entering the trade in search of a justification for having entered. “Now I’m in the trade, let’s see if I can find out a couple of good reasons as to why!”
If you want to be a successful trader, you have to be hard: Hard on yourself. I don’t mean that you have to be browbeat yourself, or tell yourself you are a loser and can’t win. I don’t mean you have to blame yourself for everything that happens to you when you are trading. Some problems and situations are unavoidable. You just have to be firm with yourself in all that you do. You can’t afford to be a mouse about the way you do things. You need strong self-discipline and self-control. This is a business; you must be businesslike in conducting your affairs.
As a business person, you must manage your business. One of the main functions of management is planning. You have to plan your trades. Other things to look for as you go through your charts are: Tradable formations and setups. Look for reversal bars that indicate a move may be ending. Look for a drop in volume that may indicate illiquidity, or perhaps a coming change of direction. Watch all the things that you can that reveal to you the kinds of information that are needed for the way you trade. These should all be part of your plan.
Some people give more thought to choosing which flavor ice cream to eat than to which market to enter and how and when to do it.
By not taking the time for preparation, you end up not having enough time to weigh the pros and cons or really familiarize yourself with what you are getting into.
You don’t have time to realize that prices have supported two ticks away from your entry about forty times in the past. You don’t have time to see that you are trading right into overhead selling. You don’t have time to notice that if prices break out of a consolidation area just ahead of yesterday’s high or low, they will also probably violate yesterday’s high or low. You don’t have time to see where prices are in relation to the trend line. You don’t have time to really grasp the overall trend, or the correction that is going counter trend. You don’t have time to really consider where you will place your stop. You don’t have time to read the market and to see what it might be telling you.
All of these things can be done ahead of time. If you do not do your homework, you will end up chasing markets in a desperate attempt to get into “the big move.”