This thread is catered to people who are relatively new to trading and those who have problems with managing emotions in trading.
Letting undesirable emotions and thoughts to dominates ones' thinking is one of the most common reasons why people lose at trading. Even if one has a good system, if he or she can't manage his or her emotions properly in trading, he or she will still have problems with trading successfully.
Fear
The most common emotions felt by trader is the fear of loss. No one likes to lose money. That's understandable. But the problem comes when fear starts to impede your way to success as a trader.
- Taking small profits and not letting your trade run
It is alright to take some profits if you are convinced the trade position you have has lost all its potential to run in the desired direction. But if you had planned for a price target but exited your trades way before you hit your target a lot of the time, something is not right. If you have taken early profits for the reason of fear of loss, and not because of a strong reliable reversal signal, then you might have a problem with letting fear decides your actions.
- Lack of courage to execute trades even though they meet your setup requirement
I don't have an issue with being cautious and not jumping into trades blindlessly. But if you can't even put on a trade even though it meet your setup requirement, it will strong hinder your path to success. You should only start trading only when you have a system/methodology you are comfortable with, provided that you have backtested your system several times. If you are passed that stage, why then do you hesitate to trigger the trade? You already have an edge because of your system, so just go ahead and take the trade, even though there is still a possibility that it may not work out! We all have wins and losses. If you don't execute trades, you may not lose but you aren't going to win either.
Suggestions
- Perceive losses with a positive perspective
You must be mentally, emotionally prepared for possible losses in every single trades that you take. Whether you like bad trades or not, they will happen once in a while. You can choose to be positive or negative about them, the market doesn't care what you think, it doesn't care whether you win or lose money. If you can't accept the possibility of losses as part of the game, trading may not for you.
- Trade only with amount you can afford to lose
It is a fact that currency trading encompasses a great deal of risk. You can make a lot of money, but you can also lose a lot too. The worst case scenario is that you could blow your account, and it has been known to happen to a lot of traders.
- Define your profit and losses before executing a trade
Know before hand how much your trade can potentially make you, and your potential losses as well. Be prepared for both scenarios. If the loss is too big for you to stomach emotionally, play with a smaller position size.
- Treat every trade as a learning experience
Regard your losing trades as lessons that you have paid for. Review your trades and see where you have gone wrong.
Greed
Another common trading problem is getting too greedy with potential profits. Bear in mind that anything can happen in the market at any time. Just because you have a running profits of 50 pips now, it doesn't mean that 5 minutes later the price will still be in your favour. It's not uncommon to end up with losses if you hold on to winning trades for too long.
Suggestions
- Scale out your profits along the way
Take profits at subsequent support/resistance levels where reversal may potentially occur. You have to decide how much profit to take.
- Move up your stop losses to break even or lock in profit
Doing this will prevent you from getting into a losing trade. But I have to warn you in advance that there are cases where your trade could get stopped out at break even level and then turn around again and make a huge move in your desired direction. Do understand the pros and cons of using this method.
- Use the moving average as trailing stop loss
This is a fairly advanced method of protecting your profits. Technically speaking it is a sound way to protect your profits and at the same time letting it run as much as possible.
Overconfidence
Just as the lack of confident is bad, over confidence is just as bad too. What's wrong with being confident? Nothing wrong. But if you break your rule just because you have a strings of winning trades, it is an issue. A common habit is to trading with a much larger position size than you would usually take. The mentality that you are in a winning streak, might get you into a dangerous mentality that the every next trade is going to be a winning trade as well. And so thus the temptation to trade with a larger trading position so as to make more profits. The problem here is larger trading size will imply either possible bigger profits or bigger losses. And usually the loss amount if this trade does not work out is an amount too big an amount to lose for your typical trades.
Suggestions
Trade with a consistent trading size
Follow your trade plan. If your plan says trade with 3 lots. Stick with that regardless of whether you are in a winning streak or not. Of course you can increase your trading size eventually as your trading account size increases. You must first come in terms with the risk involved and then make adjustments in your trade plan accordingly.
Hope the above tips and suggestions helps in your trading, I wish you all the best in your trading career. ^.^
Letting undesirable emotions and thoughts to dominates ones' thinking is one of the most common reasons why people lose at trading. Even if one has a good system, if he or she can't manage his or her emotions properly in trading, he or she will still have problems with trading successfully.
Fear
The most common emotions felt by trader is the fear of loss. No one likes to lose money. That's understandable. But the problem comes when fear starts to impede your way to success as a trader.
- Taking small profits and not letting your trade run
It is alright to take some profits if you are convinced the trade position you have has lost all its potential to run in the desired direction. But if you had planned for a price target but exited your trades way before you hit your target a lot of the time, something is not right. If you have taken early profits for the reason of fear of loss, and not because of a strong reliable reversal signal, then you might have a problem with letting fear decides your actions.
- Lack of courage to execute trades even though they meet your setup requirement
I don't have an issue with being cautious and not jumping into trades blindlessly. But if you can't even put on a trade even though it meet your setup requirement, it will strong hinder your path to success. You should only start trading only when you have a system/methodology you are comfortable with, provided that you have backtested your system several times. If you are passed that stage, why then do you hesitate to trigger the trade? You already have an edge because of your system, so just go ahead and take the trade, even though there is still a possibility that it may not work out! We all have wins and losses. If you don't execute trades, you may not lose but you aren't going to win either.
Suggestions
- Perceive losses with a positive perspective
You must be mentally, emotionally prepared for possible losses in every single trades that you take. Whether you like bad trades or not, they will happen once in a while. You can choose to be positive or negative about them, the market doesn't care what you think, it doesn't care whether you win or lose money. If you can't accept the possibility of losses as part of the game, trading may not for you.
- Trade only with amount you can afford to lose
It is a fact that currency trading encompasses a great deal of risk. You can make a lot of money, but you can also lose a lot too. The worst case scenario is that you could blow your account, and it has been known to happen to a lot of traders.
- Define your profit and losses before executing a trade
Know before hand how much your trade can potentially make you, and your potential losses as well. Be prepared for both scenarios. If the loss is too big for you to stomach emotionally, play with a smaller position size.
- Treat every trade as a learning experience
Regard your losing trades as lessons that you have paid for. Review your trades and see where you have gone wrong.
Greed
Another common trading problem is getting too greedy with potential profits. Bear in mind that anything can happen in the market at any time. Just because you have a running profits of 50 pips now, it doesn't mean that 5 minutes later the price will still be in your favour. It's not uncommon to end up with losses if you hold on to winning trades for too long.
Suggestions
- Scale out your profits along the way
Take profits at subsequent support/resistance levels where reversal may potentially occur. You have to decide how much profit to take.
- Move up your stop losses to break even or lock in profit
Doing this will prevent you from getting into a losing trade. But I have to warn you in advance that there are cases where your trade could get stopped out at break even level and then turn around again and make a huge move in your desired direction. Do understand the pros and cons of using this method.
- Use the moving average as trailing stop loss
This is a fairly advanced method of protecting your profits. Technically speaking it is a sound way to protect your profits and at the same time letting it run as much as possible.
Overconfidence
Just as the lack of confident is bad, over confidence is just as bad too. What's wrong with being confident? Nothing wrong. But if you break your rule just because you have a strings of winning trades, it is an issue. A common habit is to trading with a much larger position size than you would usually take. The mentality that you are in a winning streak, might get you into a dangerous mentality that the every next trade is going to be a winning trade as well. And so thus the temptation to trade with a larger trading position so as to make more profits. The problem here is larger trading size will imply either possible bigger profits or bigger losses. And usually the loss amount if this trade does not work out is an amount too big an amount to lose for your typical trades.
Suggestions
Trade with a consistent trading size
Follow your trade plan. If your plan says trade with 3 lots. Stick with that regardless of whether you are in a winning streak or not. Of course you can increase your trading size eventually as your trading account size increases. You must first come in terms with the risk involved and then make adjustments in your trade plan accordingly.
Hope the above tips and suggestions helps in your trading, I wish you all the best in your trading career. ^.^
'For the market to work, it needs people who think that they can beat it.'