July 31st, 2010
This is something that most every trader struggles with and there are a few things to consider if you are having this problem. In this article we will look at a few things that could be hindering your long term approach. This article is an overview of multiple articles but very important nevertheless.
Usually this happens with small time frame scalpers that do not have a clear reason to buy and sell. This is more of the gambling type of mindset and must be acknowledged as a problem before you can accept any ideas for a solution.
Most of the time the problem lies with letting the winners actually win for you. If you are risking 1 point for example to make 2 this seems like a good risk/ reward but unless you let the trade actually make the 2 points your risk/reward profile can change very fast meaning; if you risk 1 to make 2 but then always take profits with 1 point your risk/ reward profile is now 1:1 not 1:2 and this is a big difference over time.
We know the feeling of having profits and wanting to take them especially if you are not used to having profits. It all comes down to confidence in yourself and your true abilities. Everything part of trading comes down to confidence when you think about it. But you do not want to be overly confident either, there is a fine line you must ride with your emotions to stay the course for the long term.
Trading is a weird thing. You can take the calmest person and he/she can turn into a maniac when it comes to trading. On the other side of that there are people that are very aggressive with other things in life but with the markets they are very conservative. The risk associated with trading is a direct result of the profits that can be made in the markets. Some people do not like risk and some thrive on it.
No matter what style, time frame or trading goal you may have you are assuming risk. There is no way around that fact but there are ways to control the risk. Our job as traders is to control the risk and make sense out of ciaos. The only way to do this is to program our minds to be a machine, a trading machine!
Think of it this way, if you were to make an automated trading system you would sit and the computer and input rules into the strategy and then the strategy would follow the rules. So what we must do is program our minds to make the best decision in real time. The best traders just execute the trades based on their rules and strategy. To get the best strategy you need education to know what rules to input into your brain.
Automated programs have no emotion they just see X’s and O’s and True and False. But we are human and we have emotions no matter how long you have been trading. Your emotions will never go away but you can learn how to accept them so you can deal with them. Trying to squeeze in a trading approach that tries to avoid the risk/emotions will not fix the problem. This is the same as trying to skip right to the result without knowing how to solve the equation. It might work sometimes, but not for the long term.
Try to accept the risk and hold your trades to a defined target and have a way to manage your trades. For each trade you take you have to deal with the emotional side of the trade. This passes 10 – 20 seconds after you enter the trade. So instead of getting in and out then having to re-enter and go through the emotional risk it is better to just hold the first trade.
This brings us to the next step which is having odds of hitting your target for the trade. You must have a good trade setup that will allow you to have the opportunity to make the profits meaning; before you can get to the step of holding the trade you must first have the knowledge to have a winning edge. Since you are trying to program your mind to only take the good setups you must first learn what a good setup is. You see how there are steps to the process? It is not just jumping to a step randomly in the process.
Conclusion:
The only way to get your trading to the point where 1 trade doesn’t wipe out multiple days of profit is to let the winners run and not over trade. Have a realistic stop for the profit target. Could the stops on your trades actually be too tight? This might be the case especially using a very small time frame.
Keep a journal of your trades and write down how much the stop was and if you got stopped or you didn’t. Then write down how much heat you would have taken before it went in your direction. After a few weeks you can then find something that you might not have found. Maybe your stops are too tight maybe your direction was right but the timing was off. There are many things to consider but until you actually look at it you will never know.
If you need a bigger stop try trading the NQ’s because the point value is smaller so you can give the trade more room until you fine tune your entry. Try to build good repeatable habits and get rid of the bad. To do this you might have to do work and actually take time to look at it realistically.
Keep your risk/ reward in check and hold your trades to the target. Just think to yourself if you don’t think the target will be hit right when you enter why are you entering the trade?
The timing aspect of trading is hard and that is why we have made our indicators go green in the buy zone. This slows the market down and we are waiting for a color change NOT trying to predict it!
Happy Trading,
www.eMiniSchool.com
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