Lose Your Head and Your Shirt is Not Far Behind

Over-confidence
Trading for a living can be wonderful; it can also be a nightmare. If your attitude is trading is easy you probably are cooked before you begin. Trading is not easy; it’s very difficult to consistently remain mentally focused and in control of you’re trading. Know that going in and you increase your chances of success tenfold. That is not to say don’t be confident. It is to say don’t be cocky.


Control emotions
Your mind always assumes the worse; it does that to protect you from harm. Because there is a potential for loss of money and all the mental ramifications that brings, the mind tells you not to do a trade – any trade. You have to override this self-protecting mechanism if you want to be a trader. Talk to your mind; tell it you are fine with doing the trade; you have a tight stop and will not be harmed if it doesn’t work out. Tell your mind that in order to make money trading you need to take risks but the risk your taking you thought about carefully and it’s a good risk.


Fooling yourself
Once you are in a trade do not try and justify its merit. The market does that for you. The final resting place of your trade should be a tight stop loss triggered or profit taken at the first sign of danger. Once the trade is completed don’t dwell on it. Every trade is different and what worked this time may fail miserably next time. Reflect briefly and go on to next trade or take a break and make yourself a cup of tea.


Jumping the gun
Traders are constantly jumping into the right position at the wrong time because they are afraid they are going to miss it, especially at market turning points. Don’t be afraid to miss the first 25% of the move; and get out after 75%; catching 50% of a confirmed move will produce awesome results. You will also not have to deal with getting stopped out and then the move you predicted blossoms without you.


Deal with it
Years ago I was trading an arbitrage program that required me to execute many deals each day with a particular trader. One day we did a trade and I was certain the trader got hurt on it. I wanted to make him whole on the trade and suggested it to him. He declined politely, laughing he said “Sometimes you get the elevator, and sometimes you get the shaft, that’s trading”. It was true that my business was very directional and this trader made a lot of money off the information I provided when I dealt with him. His ability to focus on the overall trading and not the trade made him an excellent trader. Accept the outcome of your trades; don’t accept not sticking to your game plan.


Think in Probabilities
Accept your bad trades as normal. Don’t beat yourself up over them or try to unnecessarily tinker with preset stop loss and take profit. Allow your plan a margin of error. From the outset you did not expect to be right 100% of the time.


Note:

Jimmy Young is a seasoned institutional forex trader having 20 years of experience with different banks. He headed up bank FX dealing rooms. He is FX profitability consultant to major European private bank. He manages funds and also trades personal money. Between 1981 and 2004 he was a foreign exchange trader at following banks: Societe Generale, Julius Baer, Fuji Bank, Indosuez, Erste, Hill Samuel, Manufactures  Hanover, Paribas, European American. www.EurUsdTrader.com