By Rob Colville on February 26, 2016 in
“What were you thinking?” It’s the first thing we tend to say to ourselves or someone else who’s just done something foolish, and unfortunately for them, losing traders are left to ask themselves that same question far more often than they would like.
Now, it’s not that losing traders are foolish people. Mistakes and losing trades happen to all of us all the time, and they always tend to start with just a failed idea or belief. What follows are some of those ideas, and the faulty thought patterns that are all too common among losing traders.
Make it your mission to identify these thoughts whenever they occur, and take the steps mentioned to overcome them—you’ll trade better and more profitably as a result.
As the old saying goes, “Hope is not a trading strategy,” so while losing traders often “Have a feeling” that the market will trend or reverse at any given point, unless there’s a valid set-up and entry signal, there’s no worthy trade to be had, either.
Always rely on technical analysis and pure price action, not hunches or your hope that a market will behave a certain way. And if ever you realize you “have a feeling” about something, stop yourself and ask “What technical evidence exists to support that feeling?” Quickly redirect your focus back to the charts and base trade decisions solely on your trading strategy in order to leave hope and emotion out of your trading.
Anyone who’s ever taken a trade that ticks most, but not all, of the required boxes knows that it’s tempting whenever a set-up has a few things going for it. That’s often when losing traders say “It’s good enough” and execute, but it’s what that set-up lacks—like clearly defined risk parameters, or a prevailing trend working in its favour, or a key support/resistance level in play—that will prevent a positive outcome.
Now mind you, no trade set-up is ever “perfect,” but being selective is a cornerstone of any risk-minded trading strategy. Losing traders, often driven by their strong desire to participate, tend to overtrade by taking non-qualifying set-ups. Here’s how to combat that problem:
Stop yourself from making any ill-advised trades by writing out your trading parameters and posting them right on your desk or beside your trading screens where you can see them at all times. Hold yourself accountable, and if ever you break those rules, have a punishment system in place to enforce compliance going forward.
Every new trading day brings much hope and anticipation because you never know what can happen! The fact is, though, most trading days aren’t very fast-paced and exciting, and losing traders, eager to “make something happen,” tend to throw trades up there out of boredom, or due to the misconception that successful traders are always in the markets.
Actually, much of the time is spent waiting and analysing set-ups, not executing and monitoring multiple open positions. Most always, forced trades lose money, and they could’ve been avoided either, 1) By following the rules, or 2) By walking away when no trade opportunities were present. Here’s our preferred solution, though:
By trading part-time and only at the open or close of the market, Lazy Traders promote discipline, eliminate boredom, and get more out of trading while spending less time and resources in the markets.
A short memory is often a close ally, whether it’s in sport, in business, or when trading the markets. Losing traders, however, tend to let the outcome of their last trade—especially if it’s bad—impact their next one as well.
Even if not revenge trading, feeling angry, or believing that the market now “owes them one,” they’ll structure and manage the next trade so as to recover the amount of their previous loss, rather than using the stop loss and target parameters set forth by their strategy.
Trading with only money and end results in mind is dangerous and is how disastrous losing trades occur. It’s the stuff that ruins entire trading careers, so if ever you’re especially upset or rattled by a prior outcome, take all the time you need to become calm and refocused, and make sure you take your next trade only in accordance with your strategy.
The psychology behind successful trading often involves reprogramming your traditional habits, beliefs, and thought patterns. That’s why we offer a ground-breaking hypnosis and psychology course—a $429 value—as a complimentary bonus for new Lazy Trader subscribers. Click below for details and secure yours today!