Table of Content
Table of Content
Forex Trading Plan- Top 4 Reasons Why Traders Abandon
As a trader following your trading plan with consistency and strict adherence requires a high level of patience, discipline and focus. It is a fact that a trading plan is not created overnight and is done by testing and applying various strategies over some time. Certain currency pairs do move in trends and are known to have cyclical characteristics. An organised forex trader will normally have his trades and analysis planned out every week before the market opens, ready to execute or place a resting order. As a minimum requirement of any trading plan, a trade should have an entry position and an exit position. It is imminent that a high level of focus is required to follow through with your trading plan.
Having in-depth knowledge on this subject here are the top four items that tempt traders to abandon their trading plans. Please be aware of these temptations and always bear them in your mind.
Being Overconfident or having a lack of confidence
“Hot hand Fallacy” notion states in the event where a person experiences success after success in random events, they are more likely to have continued success. This term is often referred to in the sport of basketball when a player makes a string of 3-point shots where the probability of him making continued 3-pointer shots are very high.
When trading, it is all too easy to overcome overconfidence. Deviating away from one’s trading plan carries a significant risk: revenge-trading o recover big losses caused by overly leveraged positions due to excessive confidence can ultimately lead to account depletion and tarnished profits earned for hard work on prior trades. Traders must remain focused, adhering to their strategy as outlined in the set of guidelines defined within their carefully constructed plans; entering into any trade without clarity will surely result in disastrous consequences down the line.
Likewise, having a lack of confidence as a result of back-to-back losing trades can lead you to abandon your trading plan. Lack of confidence in your trading can exhibit a lack of belief in your trading strategy meaning getting out of a profitable trade earlier than you should because you are afraid of losing profits. This in turn means, having the mentality that “something is better than nothing” mentality. This is not the mentality you should possess, as following a trading plan is integral to whether you see consistent profits. It is easier said than done, but the trick is to be able to cope and stay composed with both a series of back-to-back profitable trades or back-to-back losing trades and not let emotions take over.
Mental and Physical fatigue
Many factors can lead to mental and physical lethargies. Whatever your external situations may be e.g. common stress, debt, family issues, etc. it can affect your trading. Trading the markets requires a high level of sharpness and accuracy as execution is everything. An HFT (algorithmic trader) needs to react to markets by the second and so the reaction and processing of information is absolutely everything. ‘Losing your edge’ or a slower reaction time would have adverse effects.
It is advised as much as you need time studying charts and price action etc. you also need time off from the charts. Intra-day, Swing and Long term trading do not require you to look at the screen for long periods. If you have placed trades with a stop-loss and taken a profit, then let the markets do their magic. Allocate time for vacation or give time away from the markets. Indeed, there are always opportunities in the markets but a well-rested trader always has the edge over one that is mentally and physically fatigued.
Waiting for trade setups- Boredom
Okay! so your now doing technical analysis, Fundamental analysis, or both before the markets, and depending on your trading plan you may not have any trade setups for the coming week. What do you do? The correct decision is to sit back but many traders get sucked in deviating away from their trade plan. Many traders have reacted to boredom by forcing trades just to feel engaged with the market. If you find yourself tempted whilst being bored, create the discipline to walk away and leave the charts.
Lacking focus- Too many Distractions
Too many distractions cause a lack of focus which ultimately spells harm. Reading and analyzing the charts require focus as error or judgment could alter your bias to trade setups. I’ve seen schoolboy errors such as a trader going long (buying) on a major resistance level, his analysis was correct but faulted on his execution. The individual was looking at the wrong chart and hastily placed his trades. After an hour he realized that his trade was going in the opposite direction and was down hundreds of PIPs. OUCH! Verdict: Found out he was multi-tasking with other duties and was not focused on his main priority. Let me make it clear, trading is not a Game! It requires 100% of your devotion and focuses if you want to succeed.