Watching Your Trade Doesn’t Affect It…Or Does It?

You have a plan – you are going to enter a trade at a specific price. But as you watch the price approach your entry level you suddenly decide that maybe another price is better. Even though your analysis told you that was the right price to enter, now that the price is at that level you think you might be able to do a bit better.

This is a very interesting phenomenon. If trading traditional markets this type of thinking will extend to where you take profit and how you exit losing positions. With European binary options you are looked into a yes/no proposition, but the phenomenon still affects where you take entries.

When you plan out a trade you take into account what the risks and rewards are. Your analysis should also dictate the best price to get in, that still has the a good chance of being reached. For example, say I think the EURUSD is going to fall. The recent high was 1.3605 and it just touched a low of 1.3550 and is now pulling back higher. I could try to get short, at 1.3605, but chances are if the price is trending lower the price won’t reach that level again. So the ideal price isn’t a feasible one. Therefore, I need to enter a position below 1.3605 and I realize that the price may put out of the money for a few minutes, but if I am right in my assessment that the price is going lower, I should end up in the money eventually.

Now imagine you set an order to execute at a certain price, and you walk away from your computer and go watch TV. That order is out there, and the trade will play out in the same way it would if you were watching it. Except that if you are watching it, you are more likely to alter that trade and potentially end up missing the trade all together or even ending up with a worse price because you wait too long to pull the trigger (waiting for an even better price).

Traders in traditional markets face a huge problem once in trades. They watch the trade intently and have set a stop and target set for the trade. The levels chosen were based on logical analysis conducted before the trade took place, but now in the trade the trader begins to question that analysis. The position may create a loss initially which creates fear, so when the price moves back into the money they take a quick profit, well before the profit target they originally planned for.

What to Do About It

If new to trading, simply focus on following a plan. Don’t get caught up in watching your trades too much; instead do your analysis before and after the trade completes. Watching it doesn’t affect how the price moves, all it does is affect you.

Discipline is one of the undisputed qualities that traders need to have — discipline to create a trading plan and the discipline to stick it. Therefore, every time you deviate from that plan–because you are watching the price and think you can outwit your trading plan by getting a little better entry price than you originally planned for–you compromise your discipline. Each such occurrence compounds, eroding your discipline and your trading plan becomes worthless, because you don’t follow it anyway.

One you have established your entry point let the trade play out as planned. Watching it and fretting about it isn’t going to change the result….and if you try to change the result mid-trade you stand a good chance of becoming a consistent losing trader because you have abandoned your trading plan and your logical analysis in favor or emotional decision making.