Inexperienced traders usually make the same mistakes. This is not reprehensible, because learning by doing is always good and ultimately leads to learning from your own mistakes - if you actually do it.
A serious mistake is always the unplanned trade. The trader turns on the screen, looks at the price and sees many opportunities. He focuses on this because his desire for quick profits is greater than recognizing risks. It is only when he has made a few losses that his risk tolerance disappears and he no longer dares to make the right decisions. A vicious cycle.
All of this can be avoided by investing the time in good planning. But what does it actually mean to plan a trade? All of this can be interpreted and depends on the chosen trading strategy. That's true. For example, the shorter term the trade, the more traders tend to neglect planning. Unfortunately, this is not a good thing, because the short-term trade should also be planned.
Planning a trade using an example
For clarification, we want to plan a trade in the DAX. We use a purely technical approach because fundamental events and circumstances are generally difficult to assess. Meanwhile, the majority of technical traders are of the opinion that all fundamental information is already processed in the course - and faster than you could guarantee it yourself. It is therefore sufficient to concentrate on the market technology.
That the market can of course also be wrong cannot be ruled out. However, the adjustment processes are very dynamic when market participants realize that something went wrong here. Before that, the trader should protect his risk management, regardless of which strategy he pursues, whether technical or fundamental.
Let's come to the planning of a trade. To do this, let's take a look at the future DAX price, which has been in the medium-term downward trend for a while. In the medium term, this means that the big trend is still pointing upwards. So if we want to plan well, we can already say, for example, that the actual trend is upward and that is why we want to position ourselves accordingly, so buy call options rather than puts.
So we are planning one However, buying a call option must wait until the right time is right. So that we can identify it, of course we need additional parameters. These are, for example, as follows:
- The upward trend line must hold as support.
- Ideally, bottom formation becomes visible.
- Bottom formation dissolves towards the top.
- Entry occurs when a resistance breaks.
And that would be how it would look in practice.
The trend line held for the first time. No trade is being entered into here, at least not according to this strategy. Short-term traders may have already used short-term reversal. Such strategies can work, especially because binary options run for a limited time, but they also have to be planned.
Only when the trend line has held up a second time and has the bottom formed in the form of a raised floor, can we go to the next step and consider an entry. In this case we needed a resistor that was broken upwards. This can be done on a short-term basis; that was guaranteed. After a brief retest of the outbreak, a call option with a term of between a few days and several weeks could be bought.
Conclusion - planning is the real work of a trader
It doesn't matter Whether short, medium or long term: Every trade has to be planned so that success can be achieved over a longer period. If the trader acts purely on the gut because he thinks he sees a chance, this trader will almost certainly not have any long-term success in trading.
Let's look at the example of trading in the DAX, so it becomes clear that the planning for this already started in August, while the actual trade was only made at the end of September. This may be too long for some, but you should plan a trade well in short-term trading, if not for so long. However, one must also say that the planning itself is completed earlier, while the rest of the time is waiting for the required parameters to emerge. All in all, this is to say that trading has more to do with planning than clicking the buy button.
So start planning before you click the button, and success in trading has come closer to you in this case. With the broker OptionFair you also have a good partner at your side, with whom you can also operate Forex trading.