Trading is all about making decisions. Before you begin trading, you must work on your decision-making process so that it is both quick and successful. The last thing you want is to face a situation where one bad decision has broken you and ended your trading career.
If you look back at a trade and wonder what on earth you were thinking, you were probably not thinking clearly when you made the trade. So, let’s take a look at decision making for traders and how to make sure that your decisions are ones that will make you, and not break you.
Analyze and Consider Carefully Before Making a Decision
Very often, when we make a poor decision it is because we have made that decision quickly, instead of carefully. It is important to make quick decisions when trading so as not to miss out, but your speed should not be at the expense of your consideration.
When we think too fast, our brain takes shortcuts, making it impossible for us to consider all the angles. When we don’t consider all the angles of a trade, we often miss an important point, which can lead to big mistakes that we otherwise would have avoided.
Keep Your Emotions Calm
When we rush decisions or do not consider all the angles, we tend to trade with emotion. It may be that we have had a number of successful trades so we become excited and overconfident, placing trades that we otherwise would not have. Or, perhaps, we are chasing losses and making trades when we should have stopped to try to preserve some of our trading account.
Emotions should always be left out of trading as they more often than not skew our perspective and impact our decision making.
Trading with Discipline
One of the best ways to keep emotions in check and prevent those big trading decisions that can break you, is to trade with discipline. This means to develop a trading plan and to stick to it. It is not always possible to keep emotions in check, but if you always stick to your plan, your emotions will not have the opportunity to take over your trading decisions.
Practice is then the key. If you practice over and over again, those decisions will come naturally and when you face a challenging situation or a surprise in the market, you will be able to follow your plan just like in the past.
Money Management
The fastest way for one trading decision to be able to break you, is to not implement your money management plan. Stop losses and other money management strategies are there to protect you and your account from just this – a trading decision that could break you. If you implement these strategies you should be able to prevent any one trade from ever breaking you. They will help you exit the trade before it comes to that point and leave you with enough capital to come back and trade another day.
