Among the most neglected subjects are those when it comes to trading. Most traders spend months, days and years looking for the ideal system. But using a system is just a part of the game. Don't get us wrong, it's essential to get a system which perfectly matches the trader, however it's as crucial as using a money management plan, or to understand all plogy barriers that might influence the trader decisions and issues. In order to be successful in this company, there has to be balance between all aspects of trading.
From the trading environment, when you lose a trade, what's the very first idea that pops up into your head? It'd likely be,”There has to be something wrong with my machine”, or”I knew it, I shouldn't have taken this transaction” (even if your system signaled it). But sometimes we need to dig a little deeper in order to see the nature of our error, then work on it accordingly.
When it comes to trading the Forex market as well as some other markets, only 5% of traders achieve the ultimate goal: to be consistent in profits. What's interesting though is that there's just a difference between this 5 percent of traders and the rest of those. The 5 percent grow from errors; errors are a learning experience, they learn an invaluable lesson about every single error made. Deep in their heads, a error is one more chance to try it harder since they know they might not get a chance, and do it even better the second time another time. And this tiny gap becomes THE big difference.
Mistakes in the trading environment
the majority of us relate a trading error to the outcome (in terms of money) of any trade. The reality is, a error doesn't have anything to do with it, mistakes are made when certain guidelines aren't followed. Are violated, when the principles you trade by. Take for Example the following situations:
First scenario: The machine indicates a transaction.
Signal taken and trade proves to be quite a profitable commerce.
Outcome of the trade: Positive, made money.
Experience gained: Its great to adhere to the machine, if I do so consistently the chances will change in my favor. Confidence is obtained in both the trader and the machine.
Mistake made: None.
Signal taken and trade proves to be a loosing trade.
Outcome of the trade: Negative, lost money.
Expertise gained: It is impossible to win every single trade, a loosing commerce is just part of the company; our raw material, we understand we can't get them . Even with this missing trade, the trader is pleased about himself. Confidence in the trader is obtained.
Mistake made: None.
Signal not accepted and commerce proves to be quite a profitable commerce.
Outcome of the trade: Neutral.
Expertise gained: Fruion, the trader always seems to get in trades which turned out to be loosing trades and let the profitable trades move away. Confidence is missing in the trader self.
Mistake made: Not taking a transaction when the system signaled it.
Signal not taken and trade proves to be a loosing trade.
Outcome of the trade: Neutral.
Expertise gained: The trader will begin to think”hey, I am better than my system”. Even if the trader does not think on it the trader will rationalize on every sign given by the machine because deep in his or her mind, his or her”sense” is much more apt than the machine itself. From this point on, the trader will attempt to outguess the machine. This error has astrophic consequences on our assurance. The assurance on the trader turns into overconfidence.
Mistake made: Not taking a commerce when system signaled it
Second Scenario: System does not signal a trade. No transaction is taken
Outcome of the trade: Neutral
Expertise gained: Great discipline, we only need to take trades when the odds are in our favor, only whenever the system indicates it. Confidence gained in the trader self and the machine.
Mistake made: None
A commerce is accepted, turns out to be quite a profitable commerce.
Outcome of the trade: Positive, made money.
Expertise gained: This error gets the most astrophic consequences in the trader selfcontrol, the machine and most importantly in the trader's trading career. You will begin to think no strategy is needed by you, you understand better from them all. From this point on, you will begin to trade according to what you think. Confidence in the system is completely lost. Confidence in the trader self turns into overconfidence.
Mistake made: Require a trade when there wasn't any sign from the system.
A commerce is accepted, proven to be a loosing trade.
Outcome of the trade: adverse, lost money.
Expertise gained: The trader will rethink his egy. The next time, the trader will think it twice. The trader will proceed”Ok, it's far better to get in the market when my machine indicates it, only those trade have a higher probability of succeeding”. Confidence is obtained in the system.
Mistake made: Require a commerce when there wasn't any sign from the system
As you can see, there's simply no correlation between the outcome of the trade and a error. The most mistake even offers a positive trade result, made money, but this might be the beginning of the end of the trader's career. As we have stated, mistakes must only be related to the breach of principles a trader trades by.
All these errors were directly associated with the signals given by means of a system, but the exact same is applied when getting out of a trade. Additionally, there are mistakes. For example, risking more money on a particular trade than the amount the trader must have risked and a lot more.
Most errors can be avoided by first using a trading plan. A trading plan includes the system: the criteria that we use to get out and in the market, the currency management plan: how much we will risk on any particular trade, and a number of other points. Second, and most important, we will need to possess the discipline to follow our plan. We created our plan when no transaction was put on no barriers were. So, the only thing we're certain about is that if we follow our plan, the decision taken is about our best interests, and in the long run, these decisions can help us get better outcomes. We don't need to fret about isolated events but they might have astrophic results in our trading career.
How to manage mistakes
there are lots of possible ways to correctly handle errors. We'll suggest the one which works better for us.
Step one: Belief change.
Every mistake is a learning experience. All of them have something valuable to offer you. Attempt to counteract the tendency of sense strategy and frued mistakes in a way that is favorable. Instead of yelling to everybody around and feeling disappointed, say to yourself”okay, I did some thing wrong, what happened? What can it be?
Step two: Identify the error made.
Define the error, find out exactly what caused the error, and try as hard as you can to effectively find the nature of that error. By Locating the error nature, you will be prevented from making the exact same mistake. Where you expected more than the answer will be found by you. Take for example a trader that does not stick to the system. The reason behind this could be that the trader is afraid of loosing. But , why she afraid or is that he? It might be that the trader is using a system that does not match him or her, and finds difficult to follow every sign. In the surface, as you can see, the essence of the error isn't in this case. You need to try as hard as you can to locate the real reason of the error.
Step three: Measure the Results of the error.
List the consequences of making that specific mistake, both positive and negative. Consequences are the ones which make us better traders after dealing with the mistake. Think on all motives you can learn from what happened. What are the implications of making that error? Well, if you don't adhere to the system, you may gradually loose confidence in it, and this in the end will put you into trades you don't really want to be, and you should be in.
Step four: Take action.
Taking proper action is the last and most crucial step. In order to learn, you need to modify your behavior. Make sure whatever you do, you eventually become”this-mistake-proof”. Every mistake turns into a little part of succeeding in our trading career by taking action. Continuing with the example would be the trader's final measure. The trader would put a system which perfectly matches him or her, or so the trader does not locate any problem following it in signals.
Understanding the fact that the outcome of any transaction doesn't have anything to do with a error will open your mind to other possibilities, in which you'll be able to understand the nature of every error made. The doors will open as you work and take appropriate action on every error made.
The process of succeeding is slow, and plenty of times it's credited to repeated mistakes made and the constant struggle to get past these errors, working on them accordingly. We deal with them will shape our future as a trader, and most importantly as a person.
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