Consistency is absolutely crucial to becoming a winning trader, especially in the long run. So how do we achieve this?
Well, we should be aiming to make our trading as OBJECTIVE as possible. This means we need to take our emotions out of the trading process as much as we can by having a clear trading plan and a set strategy to follow.
This means that a large part of the decision-making process has been removed from the equation, and we can simply focus on scanning the market for good setups, and we can monitor the performance of our trades.
One of the most vital areas we must maintain consistency in is with our level of risk. If we overexpose ourselves on a trade and end up losing, then we can wipe out a considerable part of our trading capital. This is something we want to avoid.
Calculate how much of your trading balance you are willing to risk on each trade. As we have suggested, this should be somewhere close to the1% mark.
Once you have this figured out, it is best advised to trade with consistent lot sizes so that you can keep your market exposure at the same level each time you trade.
This way, you will become more comfortable with trading that lot size until you are ready to increase your stakes.
Consistent risk-reward ratio
Many people like to trade with a consistent risk-reward ratio as it allows them to analyse their trades on a macro level and compare their actual win rate with their desired win rate.
For example, if you trade with a 2:1 risk-reward ratio, you know that you need a 33% win rate to break even. If you keep track of all your trades, you can easily see how you are performing and just how far above or below breakeven you are hitting.
If you switch between RRRs, it can become hard to keep track of your win rate for each ratio.
The best way to overcome this is to keep track of your trades and write them into your trading journal every time. Make a note of the RRR you used and record the outcome; that way, you can split test your results and see which RRR is performing best for you.
If you stick to one RRR then you will be able to understand how the market behaves during these types of trades and this will help you improve as a trader much quicker.
The skills required to become a great 1:1 RRR trader are far different than those who trade at a 10:1 RRR – stick to one area and hone your skills there.
Note: As always, the RRR is not the be-all and end-all. Set your entry and exit points strategically and be aware of key market levels.