Here’s a question that I’m sure is on the minds of alot of new traders.
My concerns have to do with my actions. I have a well laid out game plan with very specific rules for entry, management and exits. Yet i abandon them in mid trade. This is my short coming. Either deep down i do not believe in my game plan and/or I can’t handle losses which is part of trading. Any insights on this matter would be greatly appreciated.
Naturally, I can’t make a really good judgement on a specific case without a lot more detail and knowing the trader. That said, however, I can perhaps provide a little guidance in diagnosing the problem.
Losses and trust definitely go hand-in-hand. The thing I would ask is what the pattern is regarding when trading plans get overridden. Is it about taking profits too quickly? Is it about jumping out of a trade at the first sign of it moving into the red – meaning not allowing it time to turn around?
If the fear of taking losses is driving one out of positions too quickly, then generally the best plan is to cut way back on position size. Trade as small as you possibly can. Make the potential losses your system would suffer be psychologically meaningless. By cutting the pain factor you should be able to focus just on execution much more effectively. As you gain the confidence to not mess around mid-trade, you can start increasing your trade size, gradually.
If it’s second-guessing your system that’s the problem then I would inquire how much testing you’ve done with it. Generally, the more testing you do, the more comfortable you’ll become with the system.
There’s also the possibility of over-analysis. Basically, that means reanalyzing the market once you’ve entered your trade – and changing your mind. This can be a major problem for traders who are always looking at the market. One way to avoid that is to walk away and only re-evaluate things based on certain criteria – time lapse, price level hit, etc.
These are just some immediate thought as to potential problem points.
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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
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