We are often asked what type of trading routine we follow on a daily basis. This article expresses the first step of my trading routine which is mentally preparing for the risk ahead. To mentally prepare for the day, I visualize myself making the trade including the size of the potential trade.
What is Visualization?
In essence, visualization means using your mind to see something you want.
As a young boy growing up playing baseball, I found visualization to be a good way of mentally preparing for a baseball game. I would imagine the pitches coming in and my swings hitting the ball.
Likewise, at college, the day before an exam I would study in the same room where the test would be taken. That would allow me to ‘practice’ the exam before the actual test came.
Using those same concepts, let’s apply them to trading. I’m going to visualize the trade sizes for the day.
This begs the natural question, how does visualizing my trade size help with my trading?
Well, I want to be profitable. We know from the Traits of Successful Traders research, traders tend to overemphasize each trade and overleverage their account. A small market blip can then wipe out a significant portion of the account. We have no control over the market, so we need to trade in conservative sizes to protect our account against market movements against our trade.
Therefore, by visualizing my trade size being placed in the platform, I am reinforcing to my brain what I want to do which helps keep me emotionally separated from the market. By choosing a conservative trade size, I am less concerned about each individual trade and more concerned about following the markets patterns.
How much trade size should be placed?
We recommend risking a small portion of your account on all open trades. As a result of our research, we recommend utilizing less than 10:1 effective leverage. That means your trade size is going to be less than 10 times your account size.
Here is a simple formula to follow:
Account Balance X Effective Leverage = Proposed Trade Size
In my trading, I use more conservative amounts of leverage at 3:1.
A trader with $35,000 is going to place a trade size of 100k at 3:1 effective leverage.
$35,000 X 3 = 105,000 (Round to 100k)
---Written by Jeremy Wagner, Lead Trading Instructor, DailyFX Education
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