Thursday, June 08, 2006

The Emotional Side Of Trading

Hi Everyone,

I thought I would post concerning not, as you would expect, winning trades – but losing trades.

I had entered two positions on USDJPY and GBPUSD my reasons for entry were pivots as usual. I expected the trades to proceed up and down accordingly - and they did. But, that particular day I had had a spectacular argument with my other half, and when I looked before retiring for the night I saw that the combined profit for the two trades was at roughly 48 pips - Great!
However, being a little tired from the day’s aforementioned spat, I declined to put in place my usual 15 pip TSL and went to bed. On awakening I saw both trades had disappeared from my terminal! Which meant that they had both reversed and passed through my 30 pip stop-loss. Further investigation revealed that both trades had been mightily in profit before the reversal took place. I had in trading parlance "Turned my winners into losers."

There is an important lesson to be learnt here. Whatever happens, stick to your rules. ALWAYS put your TSL or TP in place – in fact if possible don’t leave trades open through the night AT ALL! (But certainly not without the TSL)

This illustrates what in my opinion is the main difficulty in trading the forex market. It is not that the technical analysis skills are hard to aquire (they are quite easy to grasp) It is the emotional side of trading that is the hardest to master. Trading, after a while, should become second nature. The signs are often clear, the direction obvious - and yet we still fail to act accordingly. We must control our emotions - not just our greed.

On the bright side – I am back to my winning ways. Examples of two 20+ pip winners earlier in the week. See the trades below.

As you can see from the image above, our pair had been testing a pivot resistance point. After three failed attempts to break through, I entered a sell order.

Our trade dips nicely as predicted and we bag 20+ pips after a bearish candlestick prompts our closeout.

Our GBPUSD pair looks as if it is reversing a short fall as a series of reversal candlesticks appear.

A clear point of support is forming at the red pivot and we enter a short term buy. The trade progresses nicely but stalls aroung the next resistance (blue line) we close out again for 20+pips.

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