Trading is a very difficult endeavor to say the least. Some days, it comes easy and the profits just seem to fly out of nowhere. Other days, it seems like it’s almost impossible to make a profit. It’s a very emotional game and after years of trading and working with traders, I have come to the conclusion that most fail because of the emotional challenges, not the technical ones.
Emotion leads to mistakes
Emotion can lead to mistakes, as you probably know. For example, you may take a couple of losses in the morning and feel as if you need to “get your money back quickly.” Because of this, you may rush into placing a new trade without paying proper attention to the markets and what they are trying to tell you. Some days the markets are simply far too choppy to get a handle on and are best left alone.
Unfortunately, the emotional pressure to recoup your losses can lead to errant trading decisions which will only cause you to lose more money, get more upset, and make yet another mistake. This vicious cycle can be avoided by practicing a little bit of patience.
Know when to step away
One of the most important things that you can learn as a trader is knowing when to step away from the markets. The markets aren’t always the best place to be, and you aren’t always going to be in the best frame of mind. Even if you’re in a proper trading frame of mine, it’s important to know when the markets may be too volatile (or too slow) to place a proper trade. Learn to go exercise, read, or relax- anything you can to get your mind off of the markets for a while they set up for better trading opportunities.
Another part of knowing when to step away is when you have reached your goal or are done for the day. One of the biggest mistakes you can make is to continue to trade when there’s no need to go further. As you know, the market is a bit difficult to deal with, because there’s always the potential for profit, but there’s also potential for loss. Once you have accomplished your goals for the day, it’s time to move along.
You should be able to not only step away from the trading terminal but close the charts and not be bothered with it until it’s time trade again. Overall, the Forex market tends to have more active times than others, so for example, if you are a momentum-based trader, you have no business messing around during a slow Asian session ahead of the nonfarm payroll. Those days tend to be extraordinarily quiet, so you should know to leave that time alone and practice your patience.
Remember to take the long view, sometimes we get paid to wait
One of the world’s best traders of all time with Jesse Livermore. He was once quoted as saying that “we get paid to wait.” This is because sometimes you are between two major levels, and you need to see which way the market is going to break. You have a planned trade ahead of you, and between now and then there is nothing to do. If you know a specific price that you want to start buying at, then you have no business jumping into the market before that happens. This is a surefire way to lose money, and it certainly negates any type of work you’ve put into the trade ahead of time.
There are specific places where the market makes significant decisions. If you are not trading these levels, then you are simply guessing as to where the next move is, as opposed to looking at the probabilities of trading. If you are not patient enough to wait for these areas, you are more than likely going to lose quite a bit of money in the market.
Paper trading as a solution
One thing you can do if it’s not the right time to trade is start to work on new systems. Paper trading supports your ‘craving’ to trade, but it also keeps you from losing any real money. Beyond that, you may find that you have the ability to come up with the new system to trade down the road which can turn your downtime into a productive time that yields future profits.