Defensive Trading is all about this type of planning and discipline. Just like when you are out driving your car you have to be on the defensive, the same is true of trading. For instance, when you are the first in line at an intersection and the light turns from red to green, you should always look to make sure the other cars have stopped. If you do this every time then your chances of pulling out and being hit by another driver are reduced.
You can apply similar principles to trading. When you take a position, you should know your exits. It's like knowing your blind spots. If something bad starts to happen, you'll know how to get out. You need to make those decisions in split-second timing, just like with driving, because any delay could cause a major accident or with trading, major losses.
- Always know ahead of time at what point you'll exit a trade.
- Don't jump from trade to trade trying to find the trend.
- Trust your gut.
- Look for high probability trades.