Regardless of what market you’re trading, you will have losing trades, it’s just a fact. That statement shouldn’t send you into a stage of comfort, placing uneducated trades oblivious to the consequences. Rather, you should be determined to find the losses that You Can Fix. The first solution to anything is understanding the problem, and with this article we delve into the most likely causes of your failing trades. Once understanding your faults, only then can you go about fixing them.
Not Accepting Your Wrong And Emotions
You’re success in trading is dependent upon You, particularly your wits as well as your ability to read different situations. Though the monetary factor is what get’s the spotlight, many traders can bring their Pride To The Table As Well. Objectivity and rationality are difficult traits to adopt, especially since trading can have such an emotional impact. Markets can cause you to either constantly doubt yourself every step of the way or become fixated on exiting at the precipice of a trade. An attitude sabotaged by doubt or becoming an Adrenaline Junkie can cloud your judgement, to the degree of not being able to see that you’re at fault, as a result losing the trade.
DailyFx have another article that touches on emotion, as well as how your ‘Fight or Flight’ instinct can takeover. They make an excellent point regarding stress entering the equation (i.e. A trade starts to go against you) and obscure your decision making process. That ‘Fight or Flight’ outcome can be difference between exiting the market before things get really bad, or stubbornly holding on hoping that the market aligns to you. Particularly if you’re holding a considerable position in the market. That Instinct may just sway you to double down on a trade, rather than rationalise that exiting is the optimal move.
Lack of Understanding or Information
If I asked you when before you made your first trade ‘Are you going to trade in any markets you don’t fully understand?’.
Your answer would most likely be an emphatic ‘No’. But this view can quickly be thrown out the window, if you notice a market continually trending and consistently seeing people profit from it. That can itch away at you and manifest into trading a market you have no previous knowledge or understanding. A lack of patience or hard-work to educate yourself on the market, can see an untimely entrance into the market. This is a common facet of failing trades.
Discipline can have many translations when it comes to trading, consistently waking up early for the start of a market, setting up a safe stop loss with every trade or checking the Economic Calendar daily to name a few. A discipline that I can’t seem to break is FOMO:
A characteristic that I found quite understated is FOMO (Fear of Missing Out), this is typically associated with Social Media. However I feel there is a prevalent connection with trending markets. Your willpower is put to it’s limits when seeing other traders make profits, from a market that you swore you would stay away from. Giving into the temptation and trading in a market you don’t know, you’ll more than likely get burned.
Even if it’s a familiar market, you can miss out on the opening of a market. This can introduce a mental state of ‘Catch Up or Price Chasing’. Sometimes it’s better to exit the day rather than extend yourself to simply chase the market.
To Put it simply: Missed Trades Cost Nothing
Hard to argue with logic like that
Market Events/Date Reaction
Though checking the Economic Calendar can definitely aid in your preparation for the trading day. There can still be events that slip through the cracks, or happen on such short notice. Even if setting up something like Google Alerts seems like too much info, you can easily head over to Google News. With Google being the most sophisticated search engine, you can have faith in them delivering you the most relevant news. *Bonus Tip* Just like Youtube, the more it’s used. The greater amount of data that can be tracked. Resulting in only the most tailored content appearing in your news feed. Investopedia wrote an extremely succinct article on the topic of keeping ‘Current’ in trading.
If you’re fed up of reading (Excluding this article of course!) and prefer an audio format, in this case Podcasts. Check out This List of Podcasts encompassing Trading, Investment and even Personal Finance. I find them particularly helpful during the commute in the morning, if I’m not fully awake.
I know it really is a cliche at this point, but you’re losses are your best tools for avoiding future mistakes. Why let history repeat itself? Our Previous Article actually touches on minimising losses, check it out if you feel it can apply to yourself.
Also is there any common pitfalls that you find yourself slipping into? We’d love to hear the problem, so we can tackle the solution. Hope you enjoyed reading!
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