Tuesday, April 2, 2013

Psychological introspection...

This morning I prematurely closed a trade on the GBPUSD. Price moved to within a few pips of my profit target before retracing. Once it retraced a few pips to breakeven, I became spooked and closed the trade with a tiny profit.
The result of the trade doesn't matter, even though I still won. This was a BAD trade because I diverted from my trading system, purely for psychological reasons. I last checked the market a few hours ago and price was again a few pips from my profit target.
Many traders have psychological weak points. Some are too scared to pull the trigger and enter a trade. Others are too impatient and enter sub-optimal setups. I hover somewhere in between. I can patiently wait for weeks for a valid signal, but when the trade is open, I want it to close as soon as possible, probably due to a combination of impatience + fear.
How to overcome my weakness? I noticed my emotional attachment to an open trade correlates with my time spent looking at a live chart. Reducing my "live" time to an absolute minimum will help.
A part of me also foolishly believes I can massage my edge if I manually manage my open trades, rather than stick to my systems. As a trader evolves, I believe they become more discretionary and less mechanical. But I'm not at that point and I definitely shouldn't be experimenting with live money!
I've also assigned myself a psychological goal. If I can finish the Australian financial year in profit (end of June 2013), then I think I can call myself a professional trader. It's a big call, I suppose, but I've already been trading live for seven months and generated a bumper profit (25%+ per annum so far, projection 40-45% by end of June).
However, I fear this goal may actually impede me. I can simply stop trading until the end of June 2013 and fulfill my goal of ending the financial year with good profit. But is this what a professional trader would do?
Of course not. A trader trades whenever possible. I think I will have to "delete" this goal from my mind as it is having an adverse impact, making me overly scared of losing trades (lose too many and I won't be able to call myself a "professional trader" anymore, an aspiration I clearly want).
Instead of shooting for "targets", I think I should focus on the consistency of my trading and sticking to my systems. This is what real professionals do.


  1. Kevin - I understand how you feel because I have been in your shoes during my initial FX trading career. It took me a while to overcome the temptation of handling / managing the trade myself. Finally, I have accepted that as long as I have put in my entry price, stop loss and profit target, let the trade run on its own because there is nothing we can do.

    As soon as I started doing this, my equity curve looks so much better because it is smooth and in uptrend.

    Thank you for sharing.

    1. Hey Greeksman. Thanks for your comment. It sounds like you've been trading for awhile? I look forward to any future insight.

  2. Kevin,

    Just same across your blog and it seems right up my alley.

    I really think that reducing your "live" time in front of the charts will help reduce that urge to break off from your strategy. I have found the more time I spend watching my open trades, the more likely I am to break from my profit targets and take a smaller profit or loss. I try as much as I can to once the trade is entered to triple check my stop loss and take profit levels then just leave it alone! (However, now that I have that metatrader4 app on my phone it can drive me crazy not to constantly check it)

    I also think that setting objective profit goals to consider yourself a "professional trader" can be dangerous. I really think that being a professional trader is more about the mindset and discipline to stick to your strategy and not just follow your spur of the moment instincts. While ending the year in profit is obviously the end goal, plenty of "professional traders" have down months or even years. I really think you should focus on sticking with your strategy and from what you have accomplished so far, it seems like you are on the right track.

    Anyway, thought I would share my thoughts and keep up the posts.

    Happy trading,

    1. Hi Tad, welcome to my blog! I agree with your insight. I've reduced my chart time to a bare minimum (only when putting in orders). Also I see you've registered on Babypips! That place can be a playground. :)

    2. Ya I looks like I am going to be spending a lot more time in forextown. I am trying to get a little more involved in the forex community, are there any other blogs or forums you would recommend?

  3. There's also forexfactory.com, which has a reasonably busy forum. I visit it from time to time to backtest any promising ideas or systems.

    On babypips, I believe ClarkFx is a professional algorithm trader and manages his own hedge fund. (http://forums.babypips.com/members/clarkfx.html).

    There's also a blog that I'm subscribed to:


    The guy is a serious algorithm / automated trader and has his own professional education website. But you have to pay a subscription to access it. It's quite expensive, about $200-$300 I believe. However his blog is free.

    1. Great! Thanks Kevin, I will be sure to check them out.


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