You’ve got a great trading system, so why are you losing?
You’ve done your homework. This included hours and hours of practice, demo trading and back-testing your system. You’ve done it by the book. No seat of the pants or impulse trading for you!
Now you’re confident and it’s time to put your money to work.
You’ve had a nice cup of tea and your first trade set up arrives. Confidence is high and you make the trade. First loss. Not a problem. You understood before you started that successful traders both win and lose and “losing is part of the trading plan”. You’ve also heard more than once that successful traders don’t win on every trade. It is not the loss that counts but how you bounce back from the loss.
Moving on and still confident you make the next trade and again it loses. This losing trade hurts a little because you got stopped out early in the trade, and then the market rebounded and would have hit your profit target if you weren’t stopped out.
You double check and yes you placed the stop where your trading plan told you to place it. You kind of had a feeling that the early weakness in the market was just profit taking from the previous day’s trading, but you’re trading a system and you must stick to it. Wounded, but resilient, you realize there is always tomorrow.
After a good night’s sleep and a few mouse clicks, your new daily trades are in front of you. Hey, this one looks good! It carries a little bit more risk than yesterday’s trades did, but look at that profit potential! With a smiling face, you execute the trade.
The trade begins well and starts in profit and you’re feeling good. You’ve moved your stop to breakeven, just like your system said. A surprise piece of news comes out from our friend Bernanke, the market reverses and blows through your stop – an “unexpected” loss. Is something wrong with the system? Has the overall market “personality” changed, affecting your system to the core, rendering all your back-testing irrelevant? Your confidence is eroding and begins to turn to doubt.
You decide to “monitor” rather than put money down on the next trade… I mean, isn’t it wise to make sure the system gets back on track before you throw good money after bad? Isn’t that what a conservative trader does? So you watch the trade.
It’s a winner!
In your head, you beat yourself up a little because you know that when you started trading live, you made an agreement with yourself to take the first 15 trades no matter what and now you’ve missed out on a big winner that would have gotten you back to even.
Has this ever happened to anyone else reading this post? Of course it has. So what’s happening here?
What’s happening is that you are out of control. Your emotions are ruling your trading. The above scenario plays out in every trader from time to time and that includes pros as well as novices.
The winning trader senses what is happening and nips it in the bud. The winning trader spend time every day, working on the discipline of trading and this includes the ability to take your setups without question every time.
There are many more losing traders than winning traders and it’s seldom about the trading system. In my career, I’ve come across at least 20 price action systems that I consider first class and yet I know for a fact that most traders that have traded these systems have lost.
Why? Because they were not in control of their emotions.