In last week’s column I touched upon human nature in regards to loss aversion; that is our unwillingness or inability to accept a loss. As defined on Wikipedia in economics and decision theory “…loss aversion refers to people’s tendency to strongly prefer avoiding losses to acquiring gains”. The manifestation of loss aversion in our trading can lead us astray from our trading plan, and can cause poor earning performance as a result. Being disciplined and being consistent will go a long way to building good and consistent earning performance. I know I’ve said this before past articles, but it’s worth repeating: discipline and consistency – that’s the name of the game (oh, and let’s not forget patience too).
Occasionally something will happen to our trades that we never bargained for. Once during major news (NFP I think) I watched my charts in disbelief and saw my stop loss get dragged by the price action during the news event, which kind of soured me on trading really big news events like NFP. Another time I remember not quite a year ago a trade was called in the room and a pending BUY stop order was placed. Price action on the chart was slowly rising and getting near the pending order, but it never reached the price point. Or so I thought, when, much to my dismay, I noticed I was in the trade, and price is rapidly falling. I looked at the chart in disbelief – price never reached my strike price. Never reached it by something like 12 pips! Outraged, I called my broker, who dismissed it due to the spread at that time of day. Well, I should’ve known better than to call them and ask because they’re never going to say they did something wrong and you got filled at the best price blah, blah, blah.
The takeaway here was to pay more attention to spreads and not place pending orders at the time of day (which was after New York close when the spreads tend to increase a bit). No point crying over spilt milk, just put it down as the cost of doing business and carry on. On the bright side here (at least for me) I’ve never had that happen since, but then I do pay more attention to spreads and the time a day I place pending orders. All in all, not a total loss, as there is nothing like experience. Remember YOU are in control of your account and YOU are responsible for YOUR money management.
And speaking of experience, one of the harder trading lessons I learned was what I like to refer to as the “sit on your hands” lesson. If you’ve done your homework, and are at content with the stops set on your trade, probably the best thing you can do is to leave the trade alone. Let it do its work. Most of the time fiddling with a trade will only make it worse, not better. Remember I mentioned patience a moment ago? Be patient and let a winning trade run. Don’t try to overanalyze. If a trade loses glean a lesson from it and look forward to the next trade. It’s hard to be in that top 5%, those who persevere and go on to make a nice living off of this
To put all this another way, you just need to be tough. Call it tough love, or toughing it out, and so on. There’s no room in this business for being Mr. Softy (another ice cream favorite for those of us were from the states). Don’t dwell on losses.Tighten your belt, turn up your collar, and learn to lose like a winner. You’ll be glad you did.
And another “you’ll be glad you did” scenario would apply to those of you who’ve been thinking about Sapphire membership in Slick Trade. Membership benefits include access to Forex strategies, educational materials (so you’ll be able to read the charts and not just be a follower), support from other members, expert advisors, and much, much, more! I already said you’ll be glad you did so I won’t say it again. Oh wait I just did. I hate when I do that!
That’s all for now, have a great week and, as always, thanks for reading! JC
Miss out on last week’s Pipsqueaks Article? CLICK HERE to access!