Today I want to share a story of my biggest mistakes and what you can do to avoid it yourself.
I am sure that many times during your trading career you have had negative emotions because your trading position was going in the opposite direction. Did you start sweating at the time? Were you hoping that your trade would reverse - even for a just a single pip of a profit? Even worse if your position was overleveraged.
Odds are that these first signs of anxiety, point toward you being stressed and therefore indicate that you need to trade less. Confused? Let me clarify. In trading, working harder doesn’t necessarily mean you will earn more money. In fact, the more trading hours you work - the less profitable you will be. Why? Because trading each setup will raise your stress levels to a high point and the higher those levels are, the odds are that more mistakes you’ll make. The goal is to trade relaxed not stressed so that you stack the probabilities and odds in your favour.
I will share my biggest mistakes and the learning experience I had to take to avoid it next time. We, traders tend to cling on to a winning trade as much as we can somehow neglecting the importance of actually winning a trade. And sometimes we are so sure that the trade will fo our way, and we tend to put more leverage on it instead of religiously following the trading plan.
Believe me, one loss or one win just doesn't matter in the long run if you use proper risk management. Losses are a regular part of any business and should be accepted the same as a win. However, being at the top of the emotional spiral (euphoric) very occasionally might make us think we are invincible and that a grand slam is just a few corners away.
Take a look at this account. I was trading it the normal way, and I didn’t have any significant problems until I started to trade the news and press conferences (pressers).
The biggest mistakes were my own. I was actually risking too much on trading the news. And not just ordinary news- but very volatile news (read it literally - FOMC Meeting Minutes). Instead of taking full profits and making the week and month successful, almost 80 % of all drawdown was caused by trading the FOMC Meeting Minutes or ECB/FOMC presser. That's bad. Really. Many times I have told myself I won't be doing it anymore, but you know..we are real traders. Being a professional trader but still a human being I fell into my the trap I was well aware of - trading euphoric while my emotions were on the highest scale. I was risking not only profits but also the equity. Instead of making the account go slowly up, I was riding the self-proclaimed wave of false invincibility. What happened is- the drawdown. Then instead of making profits, I needed actually to cover the drawdown then start from a positive zero.
That was not good. I knew it - but still, I was repeating the old mistakes. The good thing was that I have been a well aware of the problem and I have always been repeating it in my webinars. Actually, everything that I've been teaching other traders has come from my personal mistakes and experience.
Have a look at the emotional spirals above. They represent the levels of support and resistance. Treat it as the Pivot Points. If you want to trade professionally, your emotions should stay up but not above the ultimate resistance which is called euphoria. When you start making profits, your emotions will reach the stage of enthusiasm and passion. Literally, think of it as the price action.
As soon as the price touches resistance, think about booking your profits or protecting your trade by scaling out and moving your stop loss to BE+1. The same happens with any trade you make, especially if it's leveraged more than it should be.
Majority of traders merely ignore the emotional scale, and become greedy, making newbie mistakes instead of booking profits.
Keep your emotions under control, and gauge your emotional scale when you start your trading day. Always BUY your emotions. To "go long," your enthusiasm should be at support ( literally as in trading), not at resistance. The best is to start optimistic and as soon as you start feeling euphoric, stop trading! Fifty good trades can be negated entirely by a single bad trade that is overleveraged. That happens when you are euphoric and when you trade the FOMC/ECB presser emotionally.
Try hard not to get sucked into a spiral of doom (negative spiral resistance). It is challenging to get out of it, and you will need more than goodwill and a sharp mind. Much more. We traders tend to say, ‘Bad trades are often reactions, while good trades are usually decisions’.
The key to long-term victory is your trading plan and its implementation. I hope that I helped with sharing my own experience. No one is invincible, we are all emotional human beings, and we need to learn to control our emotions even if we have the method (read: CAMMACD) that is 80 % successful and a perfect understanding of the logic behind price action.
Remember: Market is always right. Just adapt and learn from your own mistakes or from professional traders who will admit they were wrong.
If you manage to control your emotions, you will make a giant step towards consistent profitability.
The analysis and the article presents Nenad's opinion. Remember, financial trading is highly speculative & may lead to the loss of your funds. Proper risk management is the Holy Grail of trading.