The Power of Being A Proactive Trader
Trading is about planning, and planning is about preparation. These are huge keys to long-term trading success. New and developing traders often find it difficult to habitually plan out trades. However, they oftentimes do not realize why they find it difficult. In this article, we are going to discuss proactive versus reactive trading, and we are going to identify how a person can practically develop the skill of planning.
Reactive Traders
Bob is a reactive trader. His typical trading approach is as follows. He sits down at his computer, opens his charting platform, glances through price movement, and sees that EUR USD is moving. The 5 and 15 minute candlesticks are big and green and he’s missing the move. Bob throws on a few technical indicators, draws a few trendlines, and keeps thinking about how he is missing the move. Finally, Bob buys EUR USD just before it tops out and moves back down and stops him out in a matter of minutes.
This is how a reactive trader operates. He sees price doing something, and then he reacts. A proactive trader approaches the market and trading in general in a much different manner.
Proactive Traders
Tom is a proactive trader. His typical approach is as follows. He sits down at his computer, opens his charting platform, and begins a full market analysis. Tom looks at the major pairs to see where the overall market sentiment. He then focuses on the few currency pairs that he actively trades and conducts in-depth analysis across several timeframes. Finally, Tom begins to develop a trade plan for trades he may potentially take within the next few hours if his setup occurs.
Tom does not react to price. Tom is proactive in his behavior. He is anticipating what price may do and building a corresponding trade plan that he will execute with his forex broker if price dictates.
How To Build Proactive Behaviors
Most traders do not plan out their trades, or they struggle to do it consistently, because it simply is not fun! It really is that simple. Trading is fun and exciting. Planning a trade is not. It’s like homework. How many people really enjoyed homework? Not too many! However, homework is much more enjoyable and rewarding if you understand how powerfully it affects your overall performance in the class and on exams. This is like trade planning.
Trade planning may not be fun, but if you start to see it from the perspective of how positively it affects your trading performance, then you will actually begin to enjoy planning out your trades. Another key is to simply change your mindset. Choose to believe that you love to plan trades. Choose to believe that you love conducting analysis and formulating a real trade plan. If you hold these thoughts to be true, eventually it will become true. You will find yourself actually enjoying building a trade plan. And, of course, you will see the positive effect it has on your trading in general, and this will only help to spur your newfound habit.
Risk disclaimer: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite.