You’ll never earn a lot if you don’t use a trading plan. This is the one key that can make or break you as a trader. In a lot of cases though, there are still many traders that end up with little to brag about even if they do follow plans. There can be several reasons for this, some of which involve mistaken beliefs.

One mistake that traders make is believing that there is a method that can automatically and magically provide perfect indicators and signals. They think that there is such a thing as a holy grail which can give them the luxury of full automated trading. Sometimes, the perceived perfect plan takes on the form of a black box system.

Techniques that are known as black box trade systems are meant to be used with little thought. All you need to do if you have one is to input a minimum amount of information and leave everything in the hands of an automated program. This is supposed to give investors the benefit of a hassle-free procedure that can be left on its own so users can focus on other more pressing concerns. Such methods are appealing to people who do not have a lot of time to monitor their investments. Black box concepts however have their own inherent disadvantages.

Anything that fits the description of a black box framework can leave you dangerously out of control. One of the few aspects of trade systems that you can control is risk management. With a ready program, there is little you can do about creating guidelines that will help determine the level of risk that you are comfortable with. Because everything is already set, you have no choice but to go for whatever is included in a package. When your personal standards are left out of the equation, you will lose more than you are willing to let go. This is how boxed strategies can lead to devastating losses.

Sensible traders prefer to devise strategies that they can customize according to their trading personalities and risk preferences. This involves determining how much one is willing to lose in a single trade, how much capital is available for investment and how much time can be spent on the market. You have a better chance to profit from trading if you carefully look into these factors on a personal level.

A customized strategy can therefore do more than keep you organized. It is also the one secret that can help you proceed logically and with as little emotional involvement as possible. Because you know you have a sound framework on hand, you can make decisions without having to suffer doubts, nervousness or insecurity. In other words, your personal blueprint can give you the right degree of confidence that you need to pursue significant gains.

You will get even better results if you take the time to back test your custom strategy. Various back testing tools can run your method into simulated trades using historical information. You will then be able to tell if your strategy has a high chance of performing well if it were used in the past.

You simply can’t go wrong with a good trading plan. Always keep in mind though that to earn well, you have to use more than the strategies that come in rigid boxes. You are far more likely to earn if you follow a system that fits you perfectly.

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