If you are just randomly trading what you like with no real underlying system, method or planning then unfortunately your odds of success in the long term are slim. Trading a winning methodology is what creates an edge in trading.
Consistently trading a robust system or methodology enables you to trade in a way that historically wins, controls risk, and does not bring your ego and your emotions into your trading in a destructive way.
Ten questions to ask yourself before every trade:
- Does this trade fit my chosen trading style? Whether it is: swing trading, momentum, break out, trend following, reversion to the mean, or day trading?
- How big of a position do I want to trade? How much capital am I going to risk? Am I limiting my risk to 1% or 2% of my trading capital?
- What is my risk of ruin based on my capital at risk?
- Why am I entering the trade here? What is the trigger to trade?
- How will I exit with a profit? A price target or trailing stop?
- At what price will I know that I was wrong? Where is my stop loss based on the position size?
- Will I be able to admit I was wrong and exit the trade if my stop is hit, or will my ego make me hold and hope?
- Is the risk small enough that I can emotionally handle the loss without blaming the market?
- Can I really risk this money or do I need it for upcoming bills? Trade with risk capital not living expenses.
- Am I committed to staying disciplined and following my trading plan on the trade?
I believe the answers to these questions will determine your success in any trade more than anything else.