Benefits Of Choosing Your Trades Wisely

Always choose your trades wisely.

There are 3 reasons why doing so may save your trading account:

1) Less Risk, More Returns - By choosing trades with a much better setup, we reduce the amount of losses. When I say better setup, I mean having both a favorable reward-to-risk ratio and a tested profitable strategy. If your win is only 20 pips but your stop-loss is 50pips, then I think you have to seriously re-consider taking that trade. Also, if you do not have a proven profitable strategy, then achieving consistency as a trader may be far out of reach. On the other hand, if we have a good reward-to-risk ratio with a profitable strategy, we will naturally "see" the markets clearer. This act in itself filters out all the unnecessary trades that most unprepared traders will take. And as we carry on trading this way, we will see that our returns will definitely be much more than our losses as time passes.

2) Prevents Over-trading - When we trade a lot, we put our account at risk of being devoured by the markets. There have been so many occasions whereby a profitable trading day ended up as losers for me. Greed usually causes us to over-trade. I am sure many of us are guilty of having that "god-like" winning streak, thinking that no evil market forces can ever stop us. Sadly, the moment we start having such thoughts is the moment that we begin consuming our first slice of humble pie. A good suggestion to prevent over-trading is to set an achievable pip target for a day or week such as trading for just 10 pips a day. Achieving consistent returns of 10pips daily cultivates our patience and discipline as traders. Which leads me to our next point below.

3) Cultivates Your Discipline - By choosing our trades wisely, we learn to be patient and disciplined traders. I firmly believe that there is a strong correlation between our personalities and trading habits. Therefore, by exercising patience and discipline in our trades, we are also indirectly cultivating them in other areas of our lives. Perhaps we can be a much more patient driver? Be a more understanding spouse? How about being more disciplined in our diet and exercise regime? The list goes on.

To conclude, choosing our trades wisely may be demanding but it saves us from wiping out our entire trading accounts. Gunning for the best setups is like the hunter in the woods, waiting only for the best possible moment to take out his target. Anything short of that would have cost him to miss out his reward entirely.

Always remember to protect your profits and precious capital for that is the golden rule.