Jayden 1. Failure to stop loss in time in forex trading
Stop-loss is one of the first lessons any financial trader must learn. Because any good offensive strategy is based on a good defence. In the Forex market, misconceptions and human habits cause us to let our losses grow, and successful Forex trading, like successful life and business, that determined by the level of control we have over our losses.
If you really want to be a smart forex trader, you must master how to keep your losses small. Learning how to lose money properly is the key to success. It’s not that difficult, we have all the resources to solve this problem, and to activate them we need to be determined to follow the instructions of our discipline and trading system.
We need to learn the spirit of Murphy’s Law and always be prepared for the worst. Hope for the best, try for the best and plan for the worst. Never rush into a trade before you have decided where you should exit. In other words, never start a trade without setting a stop loss. Think about the way where to get out, then move forward. The art of political struggle is always practical in trading.
Execute your orders with determination and always stick to your pre-set stop loss. This may seem very easy. But only a very few ambitious and determined traders have the discipline to achieve this.
What is the reason why this is so difficult? After all, to stop out is to admit unmistakably that one’s initial judgement was wrong. This act certainly does not bring the feeling of pride that human nature craves, nor does it preserve one’s fragile self-esteem.
But the real financial traders have learned to overcome these fatal elements of human nature. They have become experts at stopping losses with their will. They are able to do this because they have developed an intolerance for positions that don’t work, and they understand the existence of these wrong signals coming up, and never take a wrong position.
This is really difficult to do because of our inherent short-sightedness and inertia. If you have difficulty sticking to a stop-loss order from the system, get into the habit of closing some of your positions first. After all, this satisfies two opposing impulses, the urge to get rid of a losing position and the urge to hope that the losing position will be saved.
By splitting the psychological problem in half, Forex traders usually achieve a greater degree of clarity and mental focus, when they return to a neutral state of mind and achieve a balance that allows them to think and make decisions on their own.
On a purely psychological level, traders find it less difficult to execute their stop-loss orders and therefore feel better. The problem of what to do with the remaining positions remains, but because some of the positions have been settled, a neutral psychological attitude emerges and it becomes easier to come up with a workable solution.
2. Too concerned with profits and losses in forex trading
Many years ago, after a year of trading in Forex, I realize that the market has a hypnotic power, the price is like a hypnotic rod in the hands of a hypnotist, it leads the trader’s consciousness into a single state of hypnosis and then into the trap of the market. So, I find it is important to keep a certain distance from the market.
If you sit in front of your computer, constantly monitoring how the exchange rate is going up or down, then this behaviour will eventually rob you of the profits you have accumulated over time. This process, often called ‘counting your money, it’s where traders get hypnotized. Fear penetrates deep into the subconscious, and raises the level of uncertainty in every moment of consciousness, preventing one from focusing on the right trading strategy, which will ultimately determine how much profit we can make. As a result, we lose all control over our trading.
Focusing too much on “profit and loss” rather than “are you following the market trend?” will lead to unwise, uninformed, subconscious and impulsive reactions. Instead, traders must be confident that their current trading behaviour and position direction are in line with the current market trend. As long as the market trend is followed, then profits will come naturally.
To change the habit of counting your money, we need to set two protective prices for each trade, to protect your entire position. Every trade you make should have an entry point and two exit points – a stop-loss position and a take-profit target. Stop-loss is for protection, and take-profit is for profit. Of course, if you are trend-following, then you are better off using a trailing stop as a stop-loss and take-profit tool.
Stick to this rule: only sell when your position reaches a stop-loss or take-profit level, whichever happens first. Traders need to place the fate of each trade on their trading strategy, not on their own greed or fear. Don’t go into the market expecting to survive, don’t care about what you gain or lose in the moment, but whether the moment is following the market trend.
However, if you have just made the above mandatory move and are unable to resist the urge to sell early, you can use the Compound Selling Method. At the point where you want to sell early, sell only part of the position and keep the rest of the position until the strategy allows you to sell. This way, you satisfy the desire to sell while retaining the integrity of your trading strategy.
3. looking for reasons to support entry and hold in forex trading
Let’s see if you can find out where a trader is going wrong in the following scenario. An excited trader finds a great trading opportunity on an intraday chart, everything looks right and all the market indicators come alive on a particularly positive trading day after an afternoon of consolidation.
Then, the entry point was reached. The trader executes the operation and the deal is done. After a short rally, it suddenly starts to turn down, spitting out short-term profits, and consolidating at the entry point.
“What’s happening?” Trader thought. “This is very funny!” The afternoon rally had completely evaporated, and the market was clearly weak and vindictive. His stop loss was only one pip away now.
The trader began to research, looking for clues that why the perfect entry had started to fall. After checking all the news (and there was none), the trader checked the daily chart. “Yes, the daily chart looks good. It’s really good.” He commented: “I’m going to move my stop loss down to today’s low. Yeah, there’s no way it’s going below that.”
Ten minutes later, the new stop loss was broken as the perfect entry took his money down. This confused the trader and he closed his position, unable to believe that he had lost so much.
What did this trader do wrong? Did the trader ignore the weakness of the developing market? Not exactly. The trader made two fatal mistakes:
(1) The time frame for the operation is inconsistent in forex trading.
Selections and buys are made on a fully intraday basis, switching from an intraday point and a tight intraday stop to a daily chart and adjusting the stop based on the daily line, completely changing the initial trade, skewing the initial risk to reward ratio against the trader.
(2) Rationalizing your own wrongdoing in forex trading.
Denying the truth of what is happening, engaging in self-deception. Honesty, true honesty, no matter how ugly the truth is.
If you wish to approach the market with wisdom, planning your every trade is a necessity. Most traders fail to drive by feel, without even the slightest knowledge of when to plan their trades. However, planning your trades but not trading as planned is a far worse sin. Those who know how to do it, but don’t, deserve this knowledge the least, and the market will usually let them get their fair share of losses in return.
When the time needs to act, it is fair to say that many people fail to muster enough determination and courage. Instead, they embark on a process of rationalization. This process of convincing themselves not to do the right thing will eventually cause traders to leave the game altogether.
