The lack of a proper trading plan which includes precise rules for entering and
exiting a trade will most certainly guarantee failure over the long term. Beginners
usually suffer from the same common ailments. They abandon trading plans purely on
impulse because things are not going exactly as how they had envisioned. Repeatedly
they use unreliable methods that fail to produce a profit. Many traders hold on to
losing positions telling themselves “it is going to turn” when every indicator says
otherwise because they cannot bear the thought of a loss.
Why do they torture
themselves? Why don’t they just identify what’s going wrong and make a change? For
some people recognizing that a trade or even a trading method is not working and
making a change is easy, but for others it’s very difficult. They have to look at
their limitations admit that they have made a mistake and that’s hard because it
hurts our ego. Psychologically it’s risky, it’s often easier to fool ourselves.
Just keep going, living in a state of denial until your account is depleted. If you
recognize any of these traits in yourself you must stop trading immediately.
Take
a good look at what has been happening, try and identify the problem. If you look
close enough you may see a pattern. This is why it is vital to record every trade
and as much information about it as possible. You have to break out of old patterns
and see things in a new light.
You will never be a successful trader if you
continue to live in a state of denial. What can be done to return to reality? There
is a lot you can do. First of all make sure you are not trading under stress. When
stressed out you can’t see clearly, you become rigid and unable to see alternative
views. One of the easiest solutions is to trade smaller. The smaller the trade the
less the stress, especially for the beginner. If you are experienced and in a
loosing streak reduce your contracts until you get your confidence returns. Some
people need to take a break altogether. Get away from it all. Take your mind off
the trading.
The second thing you can do is to make sure you have a life. Trading
can be addictive especially when you are winning. Do not put all your emotional
eggs in the trading basket. You need to have other roles that give your life
meaning and purpose. By defining your identity in a variety of ways, you will not
place un-natural importance on trading events. Therefore, you will be able to take
losses in stride and look at your trading more objectively.
Finally, radical
acceptance is a key mental strategy for coping with market uncertainty. Many
traders make the mistake of thinking they can control the markets. Nobody can
control the markets. We must learn to accept anything that comes our way and to
trade accordingly. Adopt the attitude that trading is a journey and that all we can
do is go where the markets take us.
To succeed on this journey you cannot afford
to lose too much. Manage risk and just accept what you get and enjoy the ride. This
way you will trade more freely and creatively. Don’t live your life in denial.
Accept your limitations, work around them, and become a winning trader. Write out
your trading plan with precise entry and exit points. Most important set your stops
and mentally decide you will not break them. Test your system on paper and when
confident test in real time with the minimum contract size. You will have losing
trades, accept them with grace and go on to the next trade.