Guest post by Jason Madison of beatwallstreetnow.com
In the world of trading we often spend too much time worrying about signals and news releases that we often overlook the most important aspect of being a successful trader which is to develop the proper mindset. This is more important than what methods you choose to use in your trading because without the proper mindset you will lose regardless of how good your system may be. What follows some common mind traps that traders fall into and how to avoid letting them derail your trading.
1. Holding on to trades too long
So often a trader will open a trade and watch as it moves into profit and then never exit the trade and end up taking a loss. This is one of the worst mistakes a trader can make and is the result of greed and fear. Greed in the form of the trader thinking it can go further and so not taking profit and also fear of missing out on any extra pips by getting out of the move too early. This type of thinking more often than not leaves the trader with nothing more than a loss and hurt feelings as they beat themselves up over not taking profit when they had the chance.
In order to combat this you need to realize that it is more important to take sure profits than lose them all waiting for a big move. When you are given a trade signal you have no way of knowing how long the move is going to go on for. So you need to set hard exit points and get out at the first sign of trouble, instead of clinging to hope of a continuation. If your need to be in on the move is so great that you can’t bear the thought of missing out on extra pips then take profit on half of the position and then move your stop to break even. That way you will have profits guaranteed while simultaneously allowing your self to profit if the move continues.
2. Moving your stops
This is another very common mistake made by new traders which can decimate trading accounts. Traders often will watch as a trade moves against them and as it gets closer to hitting their stop they will move it back because they “just know that price is going to turn around”. So, instead of just taking their loss and moving on they move their stop back and continue to do so until either they finally accept the fact that they are wrong or they receive a margin call.
This is a simple trap to avoid because all you have to do is realize that your stop is there for a reason to protect you from losing more that you are willing to. You need to view your stops as if they are set in stone because they are your lift rafts in the violent sea of forex trading. Moving them can only hurt you because more often than not moving your stop back will do nothing but leave you with a larger loss.
3. Trying to be perfect
So many traders come into this business believing that they will never take a loss and thinking that every loss is the end of the world. So when they do lose they punish themselves mentally and end up making more mistakes as they carry that fear of loss into the next trade with them which causes them to make horrible trading decision like the one mentioned above. In order to combat this you need to learn to accept loss as a part of trading.
No one is ever right 100% of the time no matter how good they are at what they do. Michael Jordan didn’t make all of his shots and Christiano Ronaldo does score every time he takes a free kick so there is no reason for you to think that in order to be a successful trader that you need to win on every single trader. The best traders in the world take losses, but what makes them the best is that they shake off the loss and move on without a second thought and they don’t allow the fear of loss to hamper their trading. So, if you want to count yourself among their numbers then I suggest you do the same.
These are just some of the more common psychological errors that end trading careers before the ever have the chance to blossom. If you want to be successful then you need to make sure that you look out for these as well as other negative psychological tendencies.
Until next time. Happy Trading.
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