Accepting the Outcome & Focusing on Process Did you ever notice that closed trades can impact current open trades, irrespective of the currency or time frame traded? Did you ever realize that your thoughts are distracted by the outcome of the previous trade? Or that your analysis lost its sharpness after a series of wins and/or losses? Forex traders face a major mental challenge when trading. Their goal is to remain focused on the NOW and not let their thoughts, attention and actions be altered or misdirected during trading sessions. Although the goal might sound easy, in fact that seldom holds true. When looking at other branches of business and sport, there is a ton of material focused on helping entrepreneurs, managers, and professionals of all disciplines to optimize their focus and efficiency. For Forex traders one second of lower attention could be disastrous if a significant loss is occurred. The sharpness and focus of a trader is particular vulnerable when traders have moods. How does a mood impact the trading? TRADER’S MOOD A mood is a prevailing emotional tone or attitude. When a trader has a mood, the trader is less able to fully focus on the information which the market is providing because: a) The mood distracts their attention away from current reality. In other words, the trader is absent minded and thinking about past decisions, mistakes, and missed profits OR about future developments; b) The mood adds a bias to the interpretation of information. The trader creates a pink lens, which distorts the way information is being perceived. Did you ever look at back at charts and wonder how you could have missed important clues during trading? Now you know why. In these cases, substantial energy and focus is being drawn away from interpreting the charts and implementing their trading plan. The trader must utilize and understand the communication the market is showing and he can only do so if fully concentrated. Apparently a mood blurs the neutral, open and responsive view and lens of a trader towards the markets and price action. Now that we know that a mood will have a negative impact on our trading, why do traders actually get them in the first place? What triggers a mood? UPS AND DOWNS Forex traders are especially vulnerable to psychological ups and downs because of the outcome of their trades. Their mood is impacted as their performance experiences winning or losing trades. It is as simple as this: a losing trade leads to a worse mood; whereas a winning trade translates into a better mood. The particular mood in turn influences the accuracy of implementing their trading plan. 1) A better mood leads to over-confidence, which in turn means that a trader could be overisking, overtrading, or not following their own plan; 2) A worse mood leads to insecurity, which in turn means that a trader could be avoiding setups, revenge trading, or not following their own plan. MOOD TRIGGERS Although this is a typical scenario for all walks of traders, including Forex traders, the question still remains: why do traders let themselves be impacted by a win or loss so heavily? The real reason why traders have these moods is simple: Forex traders want perfect track records, want to have fun during trading, and/or are too lazy in focusing on the process and implementation. Just to name a few, as I am sure tons of other reasons exist. Let’s make a comparison with the business world and assume we are a business owner of a retail store. Would the retail store owner risk their entire operations based on one bad day? Would the retail owner perform less well because yesterday was a day with less customers? NO. They focus on improving their processes so that they have good days that outperform the bad days. They avoid risking it all because of one suboptimal decision, or due to a bad mood. They perform consistently because they have control and checks in play that allow them to treat their store as a business. Forex traders must do the exact same thing: treat their Forex trading as a business. Forex traders need to be tougher on themselves and realize that with Forex trading comes the realization of wins and losses. Forex trading is connected to winning trades and losing trades, as much as a tree is connected to the planet earth. The real mission for Forex traders is to implement the trading plan correctly and consistently, which should provide the edge. Effectiveness of a strategy and trading plan cannot be measured without consistent implementation. A trader’s performance cannot be measured without a strategy and trading plan. Of course the matter becomes more difficult when losses and wins appear in streaks. Eventually traders are able to get used to handling a single win or loss. This changes when trade losses and wins come in streaks, as the magnitude of all the emotions quadruples when a trader encounters streaks. In principle, the same concepts mentioned above are valid: focusing on the implementation and process of trading will ultimately lead to winning results. However here are some practical tips. PRACTICAL TIPS There are a couple of items traders need to do to enable the best process of trading: 1) Seriously evaluate the root cause of the losing streak or trade. By understanding which losses were due to implementation mistakes, a trader can determine the actual strategy performance. 2) Choosing the right equity curve. Each strategy will have its own equity curve. Make sure to choose one that you can handle when trading. If the ups and downs are too volatile, then choosing another strategy could be wise. 3) Give yourself a score for today’s trading implementation. Give a grade for attention and focus and not for your trading result. Setup a minimum desired grade/mark that is passable. If the mark is too low, add a RED dot or coloring to it. If the market meets the desired minimum, add a green dot or coloring to it. This way you can easily keep track and compare the number of successful versus non-successful implementation days. 4) Minimize distractions. Remove as many distractions online and offline as possible so that you are able to focus with a clear mind and head. 5) Keep checking your mood and establish boundaries for it. It is useful to keep an eye on one’s mood during the trading day. If a certain behavior can be noticed that crosses the threshold, stop trading for the day. 6) Stand up and step away from the PC screen, or trading screen. Emotions decrease when a trader is physically further away from the pc and it could help to regain the balance. How do winning and losing trades impact YOU? How do you handle the impact? Can you maintain your focus on implementation? What are your tips and tricks for focusing on implementation? Thanks for reading. Share to let others know. Wish you Happy Trading! Chris
Posted on: Mon, 07 Jul 2014 14:20:23 +0000
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