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But the greatest challenge of
all is developing mental discipline and emotional control.
After many months of practicing in a demo account and
testing the water cautiously with a few hundred dollars in a
mini account, I studied my main trading faults and
documented them.
Here are my 5 biggest
mistakes. Perhaps you can learn from them too!
1. ANXIETY &
DESPERATION - LEARN TO RELAX!
Feeling a compulsion to
trade - its poison! If good opportunities
were missed the day before, or if one or two days have been quiet
with no trades, then you need to carefully monitor your emotional
and mental state. If feelings of
desperation begin to rise take a step back and enforce strict mental
discipline - keep to your strategy, only look for safe trades, wait
for the right setup!
2. IMPATIENCE -
LEARN TO WAIT!
How many times do we
enter trades prematurely? Wait until the setup really sets up! Don't be afraid of
losing an initial big run because:
3. LOSING CONCENTRATION AFTER A
LOSS-KEEP FOCUSED
There is a danger after a losing
trade to either:
·
Shut the mind
down so you become closed to further opportunities that day
· Act
in desperation by impetuously entering an ill-thought out trade soon
after to try and regain losses
After a losing trade
muster up all your mental resources and detach yourself from it.
Imagine standing on a chair and shouting at the top of your voice:
"NEXT!"
4. THE MENTAL RUT -
BE READY TO SWITCH DIRECTION
If price goes
opposite to what your initial analysis told you, look at charts with
new eyes following the direction of price.
It can help to
maximize a chart on your screen and look at it from across the other
side of the room. Get your mind out of the one direction rut and
look at the chart afresh looking for new opportunities in the new
direction.
5. FAILING TO TAKE
REASONABLE PROFITS
How many times I have
been looking at a profit of 20 to 25 pips on the screen only to see
it evaporate before my eyes because I was hoping for a big move and
decided to hold on.
Currency day trading
by nature revolves around smaller price movements. Often price will
get to 20 or 25 pips and then retrace. It may then resume its
direction or it may not.
I have learned it is
important to take the first profit early, and then let an additional
lot or position(s) run to a more ambitious profit target. At the
same time as taking out the first early profit, the stop is moved to
protect the remaining positions.
I used to put myself
through much mental anguish from failing to take a 20 or 25 pip
profit. Price would come back to perhaps 5 or 3 or 2 pips and now
your emotions come rushing in regretting you didn't take the profit
that was offered to you and hoping against hope price will return
and even go on further for the big one!
Save yourself a lot
of mental exhaustion by taking a reasonable profit early after
examining the charts to see where the first major level of support
or resistance is likely to be.
Identify And Act
I have heard it said
many times that currency day trading is more an art than a science.
Each individual interprets the charts according to their own
perception. There are no rigid, hard and fast rules. Having said
that, a solid currency day trading strategy is necessary obviously.
However, it must be
backed up by strict mental discipline and control over emotions. See
if you identify with any of my 5 biggest mistakes listed above and
take the appropriate action! by Michael A. Jones
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