subject: Trading Methods - Do You Really Need Them? [print this page] Some people debate over what trading methods really are. Some define these as all kinds of strategies and techniques used to approach trades in various markets. This however is an incomplete definition. When experts refer to these, it is likely that they are really referring to trade systems.
Making investments is just like starting businesses. Just like a serious business undertaking, making trades on a market should be performed with a clear plan in mind. This is what trade systems are. They help determine how investors should decide on their available options. Some downplay the use of plans because of the fact that the various markets all generally move in differing levels of unpredictability. This however should give you more reason to invest on a trading method.
The markets may indeed be unpredictable. This doesn't mean though that you can control nothing when you invest your money. You can actually control your psychology so that you only make decisions based on logic and not on emotions. This kind of mindset can only be generated through a comprehensive personal plan. This is what systems are really for.
A plan first and foremost, determines when you should enter trades. People who function emotionally or illogically take insanely long trying to spot perfect entry indicators. There is however, simply no such thing. There is no magical signal that will always point you towards the right direction. Good trading methods take simple and direct approaches to making entries.
Your system can also help you make the right exit. This is more important than you think. This is simply because people sometimes get so caught up in their emotions that they sometimes miss the appropriate exit points. This can happen to people who are so afraid of losing that they either let go too soon or hold on too long to their positions. With a good plan, you can leave at a point when you've already enjoyed or exhausted your profit potential.
Getting the right signals for entries and exits is already a good service that you can get out of a reliable trading method. The more important aspect of any plan however is trading risk or money management. This is the part where investors can secure themselves from huge losses and increase their profit potentials. Risk management involves defining float size, maximum loss and stop orders among other things. When you've tackled all of these vital elements, you will be able to control the degree of possible losses that you might encounter while you trade.
There are many plans that you can use when you make trades. Often though, it makes the best sense to go for custom systems. This is the best way for you to ensure that every component or element in it fits your unique personality as an investor.
Strong and reliable trading methods are invaluable. If you want to improve your chances of making considerable gains, you need to invest in one now. You can tweak an existing plan to fit your purpose and preferences or you can make your own system from scratch.
by: Jimmy Cox
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