Many traders forget the reality and fail in the business of trading. Reality check is applicable for every aspect of your trading activity. Be it a trade or management of your account, you should tread with realistic expectation and analyze the situations by keeping the reality in mind.
Realistic expectations are essential for successful trading. Many novice traders take up trading with a dream of turning few thousand dollars into a million dollars and that too in few days or weeks. You will likely to over trade for realizing your unrealistic dream of becoming millionaire quickly. Over trading is a sure path to blowing up your accounts.
What does it mean by realistic expectations? Let’s assume that you trade conservatively and put only 2% of your account on the table on every trade. For 5 trades every month, you risk a tenth of your account every month. If you achieve 70% of the winning percentage, with a conservative expectation of risk reward ratio of 1, you can expect to grow your account 7% each month. This is a rough idea of how you should approach your trading expectation.
Expect and Take Realistic Profits
You should determine the both ends- maximum profit and maximum loss from a trade before entering it. Target and stops should be predefined before entering a trade. This is where a realistic assessment of the situation comes into play. Numerous trading strategies are traded worldwide. The profit targets should be decided logically and not by emotionally with unrealistic expectations. One should not aim hundreds of pips with a very tight stop loss. You should study different exit strategies.
Don’t Forget Stops
A trader should never compromise on the stop loss. Trading without stops is like driving a car without breaks. A trading strategy plays an important role in determining the stop loss. You should not call a losing trade a positional trade and keep it without any logical explanation to it. On the other hand keeping a small stop loss without any logic is also bad trading practice. Let me remind you that there are trading strategies which follow strict stop loss.
Accept the Mistakes
You as a trader should assimilate the fact that you are not going to win all the time. It is very difficult thing to accept that you have committed a mistake. But if you understand this human behavior and accept it, you will also accept your trading mistakes. It will keep you away from a bad practice of keeping a losing trade because you can not accept a mistake on your part. It is your responsibility to judge the situation objectively.
Reality check is nothing but an ability to see what is going on objectively. When you are emotionally detached from the decision making process, you see the things the way they are and make better trading decisions. Practice will make you a smart trader. Accept the reality and become a successful trader.