The 2013 trading year has come to a close, leaving traders to reflect on successes, failures and what may have been. Now before you start getting to nostalgic, consider using this time to think about what can be changed for the 2014 trading year.
Below you will find my top five trading resolutions for the 2014 trading year!
1. Write Down Your Trading Plan
Every trader should have a list of trading rules to follow. Nothing can be more detrimental to a traders account balance than not knowing when they intend to buy or sell. While “trading on instinct” or “just winging it” may work in the short term, it doesn’t breed long term trading success.
The solution is to write down your trading plan for 2014 now! Do you intend to trade breakouts or retracements, trends or ranges? These decisions should be made ahead of time that way when trading opens in January, you are prepared for action!
2. Manage Risk
Knowing where the exits are in trade is just as if not more important than planning an entry. Think about it like this: Just as you would want to know where the fire exits are in burning building, traders should know when and where to exit a losing trade. I know no one wants to lose money, but there are considerable advantages to setting stops and knowing how much money you can stand to lose on any given position.
Also consider how much you are risking per trade. The easiest way to do this is to never risk more than 1% of your account balance on any one trade idea. This means that in a worst case scenario on a $10,000 balance, you will not take losses over $100 on any given trade idea.
3. Maximize Profits
The number one mistake of traders is cutting their winning trades short while letting their losses run. This problem can be easily avoided and Traders should resolve this issue for 2014 by trading with a favorable risk reward ratio. So what exactly is a Risk/Reward ratio and how do we use it?
A Risk/Reward ratio compares the amount of profits we stand to make relative to our potential loss. For instance if we are using a 1 to 2 Risk: Reward ratio, we are looking to make twice as much in profit relative to what we are risking. While the ratio itself can be modified, the larger the profit target the less accurate we have to be in our trading to produce profitable results.
4. Run an Account Statement
How do you know how your trading is going without running an account statement? This should be an easy resolution, because most trading platforms already have a report function built in. Normally I would recommend running a statement at least quarterly.
Once you have your statement, take a look and find out whether you are following your trading plan, managing risk appropriately, or even using a strategy for current market environments. This time of reflection can bring things to the forefront that may have gone otherwise unnoticed. If you see any issues in your trading, resolve to change them and move on to your next position.
5. Have Fun
Lastly when it comes to trading in the New Year, remember to have fun! Often times we as traders get so caught up in the moment or hung up on one bad trade, we forget to enjoy what we are doing. A trading career is comprised of thousands of positions, so don’t let one bad one keep you from doing what you enjoy or derail your chances for success!
Regardless if 2013 ended with a profit or a loss, now is your chance to start over and learn from past mistakes. Resolve to make changes in your trading now and reap the benefits in the 2014 trading year.
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