Acting on Impulse vs. Sticking to Your Forex Plan

Updated from its original posting on 2008-03-08

Have you ever ditched your forex trading plan? If not, you should read this anyway because you’re most likely lying. If you have, why do you think you’re so “unfaithful”?

Do you blame it on your personality? Temporary insanity? Or an excuse that it’s all just part of trading?

You might actually be right. There are many factors that could contribute to your lack of discipline. Depending on your personality, background, training, and experience with the forex markets, you may have trouble controlling your tendency to act on impulse.

forex panicFor some, impulsiveness is in their blood. They have trouble concentrating. They are easily bored. They look for quick thrills for relief. For others, impulsivity is related emotional weakness. Some people have so much trouble controlling their emotions that they react impulsively out of frustration.

Temporary setbacks are inescapable in forex trading. When the extremely emotional trader encounters one of these setbacks, he or she becomes overly distressed, and may close a position early, or in a fit of frantic, make a major trading mistake that can only be fixed by closing the position.

No trader is perfect; any forex trader can be impulsive at times. Research has shown, for example, that when people are tired, they have difficulty concentrating. As much as your conscious mind cares about sticking to your trading plan, your unconscious mind thinks, “Who cares? I just want to get this over so I can chill out.” Your psychological resources have been exhausted. When you push yourself to the limits, you’ll have trouble concentrating on your trading plan and obeying it.

Other forex traders may be impulsive because they lack experience. You can’t expect to stick with a trading plan when you don’t know what the heck you’re doing. If you’re new to forex, you’ll lack confidence and feel uneasy. You’ll start hesitating to pull the trigger. You won’t want to risk your money because you don’t have that strong belief that your plan will produce a profit that seasoned traders display.

Trading plans must be clearly defined and easy to follow. When you have an incomplete forex trading plan where important parts are left unclear, you’ll have trouble following it. A trading plan should consist of clearly defined entrance and exit strategies. Signals that indicate how the trade is going are also important. Don’t underestimate the importance of clearly mapping out a trading plan. You can’t stick with a trading plan that you can’t follow.

The winning trader is the disciplined trader. Disciplined traders stick with trading plans. They don’t act on impulse. It’s essential that you identify the reasons you find yourself trading on impulse. It could be your personality or it may be situational, but whatever it is, you must gain awareness of these factors and resolve them. Once you control the urge to act on impulse, you’ll trade more profitably.

If you need more tips, here is a guide on how to build your trading plan.