Trade long enough and you will start to notice some usually regular and potentially destructive habits in your trading. You may chase trades, entering at a later point than your strategy dictates because you fear missing a trade. You may have trouble holding through a few gyrations in the market because you are impatient in waiting for your profit. You may risk too much on each trade, always finding yourself with a severely diminished account after a string of losses. Whatever your particular habits are, once you have identified them, you can use the 3-D process to start overcoming them.
A trading issue is usually linked to some type of emotion which is compelling you to continually repeat your actions. Continually risking too much on each trade is either from lack of knowledge (see: Determining Binary Options Position Size), or impatience with letting the account grow at a slower, risk-controlled rate.
For your particular issue, work through the following three step to help discover the beliefs which are causing your issue.
- Ask yourself what feeling you have when the issue arises? Is it fear, hope, greed, anger…?
- What is your internal dialogue as the issue occurs? Are you afraid taking a loss? Are you afraid your profit will disappear? Are you afraid to take an opportunity, or afraid of missing one? Are you greedy and wanting more from a trade than it can offer, or your capital allows for?
- Isolate the belief causing this internal dialogue. If you continually risk too much on trades your belief may be “I need to capitalize right now because another opportunity may not come up.” Obviously this belief is false. There are plenty of trading opportunities which means risk can spread out, and there is no need to take large risk on a single trade. But until the belief is uncovered and then logically discredited, it will continue to wreak havoc on your trading.
The next step is to determine your course of action. While most issues can logically discarded with a bit of practice, some issues may require additional attention. This may mean talking with someone, such as a mentor or asking others in forums how they overcame an issue/belief, but ultimately this is the step where you choose to do something about the issue and not just let it ruin your trading.
Once you have uncovered the belief–such as “the market will take my money” if you are afraid to take trades–the first step is to see if you can just “logic” your way into no longer listening to the belief. In this case, the market doesn’t have a motive, it is just is. If you have prepared, thoroughly tested your strategies and have a solid trading plan, then this is an illogical belief. On the other hand, if you are unprepared for trading, then this belief is possibly valid and you need to more thoroughly prepare for trading. Take action to refine your trading approach, study, personally test strategies in a demo account.
Your goal here is to take action, both internally and by way of your actions to overcome the issue.
Now you hopefully have a handle on the issue you’ve been dealing with. But the work isn’t done. While your trading may just get better, more than likely you’ll need to implement a design for how you will handle this issue should it arise in your trading again.
Say you have a tough time holding through gyrations and letting the market hit your target. You realized you have a belief that “I am always wrong and market won’t hit my target.” These may be true or untrue, so in the determination stage you decided to check out your plan, make sure you had good strategies, that the strategy works in a demo account and that targets are placed at areas which are likely to be reached. If you have done this, you now need to let go and let your strategy do its work.
Your design may be to walk away from your screen while you are in a trade so you don’t pre-maturely exit (assuming you have a stop and target on the trade). Your design may also be force yourself to watch the trade, but you can’t make any mid-trade adjustments–either the target gets hit or the stop loss gets hit. Your design may be to keep a trade journal while you trade so you can write about your feeling instead of impulsively acting on them. In these ways, through practice you’ll get used to holding trades while the market moves back and forth.
Trading issues require serious work. We all have certain tendencies which hurt our profitability, but by discovering what they are, determining what to do about it, and then designing a plan for how we will use the new found insight, we can potentially overcome our trading problems. This process won’t happen overnight, and requires taking personal responsibility instead of blaming the market or brokers for our losses.