If you have your entry point as per your strategy, you have a confluence of signals and a good risk reward, why haven’t you pulled the trigger on the trade? The fight or flight reaction is well known and it extends to the trading environment. Naturally, you will do two key things in a fight or flight response. You will weigh up the scenario and decide whether you are strong, and therefore can fight. Or you are weaker, and will therefore run.
A novice trader’s natural reaction is to book profits early and hold onto losing trades. This is because you want to confirm you are right as quickly as possible and not admit you are wrong and could easily result in your waiting for additional confirmation to ensure you are right. Typically, this results in traders jumping on a trade too late, missing their risk reward levels and potentially buying at the top of the market and selling at the bottom as they missed the move.
There are three steps you can take to delaying or overcoming this response. The first step is to understand it, the second is being able to notice it in yourself - deemed emotional intelligence – and the third part is learning to cope with it. Your ultimate aim should be to place trades reactively based on your trading strategy and the market conditions i.e. as a novice trader you will no longer debate the consequences or create ‘what if’ scenarios since you should be on complete autopilot. This only comes with experience and practice, so the old ‘10,000 hours rule’ has a lot of truth in it. However, a good tip is to get off demo accounts and onto tiny money accounts as soon as possible since your emotional state trading real money is very different to no-risk trading on a demo account.
It is a good exercise to place two trades when you enter, then close one of them at a fixed 2:1 reward to risk ratio and move the other to break even when profit is taken on the first. Hold onto the remaining half for as long as you can, closing it only when you want to take a trade in the other direction at a change of trend. This has now paid for at least one losing trade, so it means that you only need to get a 50% success rate to be in the money in the long run. You have guaranteed a positive return from the trade as a whole, which allows you to psychologically stop worrying about the remaining half of the trade. This reduces the deflated feeling of being in the money, then holding on too long and letting the price come back to close the trade at breakeven since you have already taken 50% profit. It also increases the chance of much higher reward to risk trades since there is a chance that the trend will continue, maybe even significantly.
Get used to losing money. Forget about trying to get it right 100% of the time. Forget about getting it right 75% of the time. You will lose money regularly: your task as a trader is to lose the least amount of money possible with each and every losing trade. So if you are confident that a trade is going bad or some news came out that changes the fundamental picture, then get real and get out, sooner rather than later. Most pro traders lose money all the time, they just ensure that the winners are big and the losers are small.
Focus on what is at risk rather than what you can win. Your capital should be very precious to you, guard it diligently by following the following these rules: Skip trades that you are not 100% on; place trades to breakeven at the nearest safe distance; don’t trade aggressively counter trend; and don’t try to guess tops and bottoms when entering a trade.
Be aware how far the instrument will move in a typical day. ATR is the trader’s friend. If you are really keen to go long on a trade and the pair has already moved more than the average amount per day then you are increasing the risk of the trade and at risk of buying at the top of the day.
When you have a string of winners don’t get overconfident – the market will pull your pants down and kick you in the arse quicker than you can blink! Remind yourself about sticking to your strategy and risk management plan rather than for how much money you are making over one day or one week. Remember: there are old traders and there are bold traders, there are no old, bold traders!
Finally, if you are worried about your trades then probably they are too big. Reduce the size of your positions until you are comfortable taking a hit on them if they go wrong. This all comes back to focusing on what you could lose rather than what you could win.
For more information about this and other forex topics, we suggest you visit our site at Learn Forex Trading | Online forex course | Professional Forex Training.
A novice trader’s natural reaction is to book profits early and hold onto losing trades. This is because you want to confirm you are right as quickly as possible and not admit you are wrong and could easily result in your waiting for additional confirmation to ensure you are right. Typically, this results in traders jumping on a trade too late, missing their risk reward levels and potentially buying at the top of the market and selling at the bottom as they missed the move.
There are three steps you can take to delaying or overcoming this response. The first step is to understand it, the second is being able to notice it in yourself - deemed emotional intelligence – and the third part is learning to cope with it. Your ultimate aim should be to place trades reactively based on your trading strategy and the market conditions i.e. as a novice trader you will no longer debate the consequences or create ‘what if’ scenarios since you should be on complete autopilot. This only comes with experience and practice, so the old ‘10,000 hours rule’ has a lot of truth in it. However, a good tip is to get off demo accounts and onto tiny money accounts as soon as possible since your emotional state trading real money is very different to no-risk trading on a demo account.
Here are some of our key tips
It is a good exercise to place two trades when you enter, then close one of them at a fixed 2:1 reward to risk ratio and move the other to break even when profit is taken on the first. Hold onto the remaining half for as long as you can, closing it only when you want to take a trade in the other direction at a change of trend. This has now paid for at least one losing trade, so it means that you only need to get a 50% success rate to be in the money in the long run. You have guaranteed a positive return from the trade as a whole, which allows you to psychologically stop worrying about the remaining half of the trade. This reduces the deflated feeling of being in the money, then holding on too long and letting the price come back to close the trade at breakeven since you have already taken 50% profit. It also increases the chance of much higher reward to risk trades since there is a chance that the trend will continue, maybe even significantly.
Get used to losing money. Forget about trying to get it right 100% of the time. Forget about getting it right 75% of the time. You will lose money regularly: your task as a trader is to lose the least amount of money possible with each and every losing trade. So if you are confident that a trade is going bad or some news came out that changes the fundamental picture, then get real and get out, sooner rather than later. Most pro traders lose money all the time, they just ensure that the winners are big and the losers are small.
Focus on what is at risk rather than what you can win. Your capital should be very precious to you, guard it diligently by following the following these rules: Skip trades that you are not 100% on; place trades to breakeven at the nearest safe distance; don’t trade aggressively counter trend; and don’t try to guess tops and bottoms when entering a trade.
Be aware how far the instrument will move in a typical day. ATR is the trader’s friend. If you are really keen to go long on a trade and the pair has already moved more than the average amount per day then you are increasing the risk of the trade and at risk of buying at the top of the day.
When you have a string of winners don’t get overconfident – the market will pull your pants down and kick you in the arse quicker than you can blink! Remind yourself about sticking to your strategy and risk management plan rather than for how much money you are making over one day or one week. Remember: there are old traders and there are bold traders, there are no old, bold traders!
Finally, if you are worried about your trades then probably they are too big. Reduce the size of your positions until you are comfortable taking a hit on them if they go wrong. This all comes back to focusing on what you could lose rather than what you could win.
For more information about this and other forex topics, we suggest you visit our site at Learn Forex Trading | Online forex course | Professional Forex Training.
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