Identifying valid trades is a fundamental skill in trading psychology. This refers to the process of evaluating a potential trade to determine whether it aligns with your trading strategy and risk management guidelines, thus deemed as “valid”, or if it doesn’t, then it’s considered “invalid”.

A valid trade not only meets the technical criteria based on the trading system or strategy you’re using, but it also fits into your overall trading goals, capital risk parameters, and comfort level. For example, if your strategy requires a particular pattern or a specific price level to be reached before making a trade, a valid trade would be one that meets these requirements.

On the other hand, an invalid trade is one that may seem appealing, perhaps due to a hunch or a tip, but doesn’t align with your planned strategy and risk parameters. It might also refer to trades taken based on emotional triggers such as fear or greed, rather than logical analysis.

The ability to differentiate between valid and invalid trades is crucial, as it helps in keeping emotions in check, reduces risk, and contributes to more consistent and profitable trading. Mastery of this skill improves your trading discipline, allowing you to focus on quality trades instead of quantity.