Sometimes, trading is all sunshine and lollipops.
But sometimes it certainly is not!
Traders make a habit of shooting themselves in the foot—despite doing a lot of good things.
Often this is due to errors that are obvious in hindsight. In particular, this happens when traders make decisions against their own analysis.
Retail Traders Tend to be Good Analysts
In my experience, many retail traders tend to be very good analysts. They can pick the markets quite well—at least enough to give themselves some sort of edge.
The fact of the matter is that things like candlestick patterns, support and resistance, and trading with fundamental sentiment in your favour all work quite well. With some experience, these things are not too difficult to pick up.
Traders fail when it comes to the actual trading part. They let their emotions get in the way and fail to trade in alignment with their analysis and market model.
Awareness is the First Step
The first step in avoiding this frustrating phenomenon is awareness. Be supremely aware that what you are about to do is against what your analysis says you should do.
It can be helpful to write down your analysis and plan for the week in advance. This way you can’t kid yourself and pretend that this is what you planned anyway—it’s right there, staring at you on the page. I share my analysis each week on the FX Renew Blog.
You can then assess the market against your plan and determine if something truly has changed or if you are being a coward and taking some profit when you shouldn’t or entering when there is nothing really there.
The Hidden Beauty of Stop or Limit Orders
The next way you can avoid making errors is to use stop and limit orders placed well in advance, both to enter and exit the market.
In particular, I like to use stop entries (as opposed to stop losses) to get me into positions. As I like to trade breakouts, I can place these orders well in advance of the actual breakout, so that:
1. I don’t get scared when there is a breakout and fail to enter.
2. I don’t trade breakouts that in hindsight were not of good enough quality.
By placing these trades “in peace” well before the action happens, I avoid decision-making errors that can occur in the heat of the moment.
Take Control by Taking Notes
Every time you trade against your analysis, write it down. Keep this as a journal along with your written analysis.
Keeping a trade journal allows you to objectively look at each decision you have made and review its effectiveness. You can then go back and see if the market did what your analysis said it would or if you are actually good at working out when things have changed.
You might be quite surprised if you do this. Your analysis that you did well in advance tends to play out, while your short-sighted decisions in the moment tend to be influenced by market noise.
How About You?
What mistakes do you tend to make or where do you struggle with your trading?
Let us know and we will see if we can help.
Cheers,
Sam
About the Author
Sam Eder is a currency trader and author of The Consistent Trader and the Advanced Forex Course for Smart Traders (get free access). He is the owner of www.fxrenew.com a provider of Forex signals from ex-bank and industry traders (get a free trial). If you like Sam’s writing you can subscribe to his newsletter or get FREE access to his acclaimed How to Be a More Consistent Trader Short Course.