There are almost certainly millions, if not billions, of variables affecting a market at any one time. There's no way a human can "contain" or even gather and comprehend that much data; it's just impossible. The only way we'll have a chance to truly understand it is to learn how to read the market footprint; price action.
You need to understand that you are one player in a huge competition. Everyone is trying to make money, and you can't control the market or your competitors.
Our goal is to follow our plan and trade according to our edge. We will protect ourselves by managing our risk.
Main 4 things that you can control in your trading:
- Our own psychology
- Position sizing
- Risk management rules
- Trade selection and setups
Now that we know what we can control, let's focus on developing a plan around these core concepts. Remember, your goal should be to make money in the market, not to beat the market. You can't control the market, so don't worry about it.
1) Our Own Psychology:
This includes our beliefs, emotions, biases, etc. The first step is to become aware of how we react to different situations. Then we need to develop a plan to deal with our psychological reactions in a constructive way. For example, if we become afraid of losing money, we can develop a risk management plan that will help us to stay in our trades and protect our profits.
2) Position Sizing:
This is how much capital we are risking on each trade. We want to make sure that our position size is consistent with our risk tolerance and account size.
3) Risk Management:
This is how we protect our capital while we are in a trade. We want to set stop losses and profit targets so that we know when to get out of a trade.
4) Trade Selection and Setups:
This includes the type of trades we are looking for, as well as our entry and exit rules. We want to make sure that our trade selection is based on our edge, and that our entry and exit rules are clear and easy to follow.
With a plan in place, we can now focus on trading our system consistently and managing our risk. We need to stay disciplined and trade our plan no matter what the market is doing. Remember, we are in this for the long haul, so we need to be patient and stay focused on our goals.