Failling to cut losses and letting a small loss turn into a huge one might be one of the most common mistakes traders have when they start out.
This has to do with the mindset that we as humans have to be right in order to proof ourselves that we are right.
So instead of exiting the trade and admiting that this trade is not working out we move our stop loss once and then again and again and ouch we have a huge loss.
We have to focus on not concentrating if we are right or wrong but on losing small when wrong and winning big when right.
Cutting winners short. This aspect has to do on not wanting to lose a few pips already earned. Profits are taken to early not giving the market time to develop in our favour.
Therefore I would advise for you to develop a signal for when you should exit your trades. Like this it will be easier and more profitable to let your trades run and to catch trends.
It will be the big winners that will make up for the other small losses incurred which are part of our trading business.
Oversold and overbought. The market can stay irrational longer than you can remain solvent. This aspect has to to with overbought and oversold on indicators. This just means that when an indicator like the stochastic is below the 20 % level that price does not need to go up.
No it does mean price is trending and may trend for quite some time. When it crosses back over the 20% level then price might initiate a retracement. Therefore I would advise to trade whenever possible in direction of the trend.
Price might just retrace a little bid and then reverse again in direction of the original trend. When this happens then we might not be given complete stochastic cycles.
Analysis paralysis, this happens when we are given many many indicators and we want to use them all.
What we have to be aware of is that most indicators are lagging.
The other aspect to be aware of is that they may be telling us the same information about price.
So we need to use some kind of filter for trending indicators and for ranging indicators.
Otherwise our actions are not taken fast and we hesitate on pulling the trigger if we want all indicators to allign.
Now the hard part is for you to go through the process of finding what works best for you and only you can do the work.
Trading emotions. You have to understand that price moves regardless if you are sweating or shouting infront of your screen. The calmer you are the better. Introduce the trade from your trade idea and let it play out.
Look for actions you might take not to be that absorbed. It can be simple things like fixed profit and fixed stop loss and that is it or if you want to let the trade run insert it and the close the computer and come back some time later…this depends on your trading timeframe.
Micro Managing the Trade. This simply means that you use for example the daily chart to enter your trade but then switch to a smallet time frame to manage your position.
Most of the time this approach might not work beause the trade needs more space to work out. The best thing is really to find trending markets and trade in direction of the trend on the same timeframe you inserted your trade.
Not inserting random trades due to boredom. You need to have a trading plan and only enter the market when your criteria is met It should become a repeatable action that you should master.
If you do not do this then you fail to see if your plan has any edge in the market. You will not be able to see or to measure your results from one consistent setup.
Do not blame yourself on every trade. Try not to get frustrated by this trading business. It is hard and I may tell you even that is very hard. Try always to see the positive side taking one day at the time.
Write down what you made right today and apply this knowledge for tommorrow.
Try to master yourself in a set of actions that are comfortable for you.
Well another post which I hope you enjoy.
BEST OF PIPS