Updated from its original posting on 2014-01-17
At some point during your trading experience, you must have felt like the market is out to get you and that absolutely nothing is going your way. In these situations, do you a) take a step back to regain focus or b) try harder and prove that you can catch pips no matter what?
If the latter applies to you more often than not, then you might be prone to forcing your trades. Not only does this involve taking trades that do not meet your trading rules, but it could also take the form of either trading too large or trading too often. These trading no-no’s often take place when one is bent on making things happen instead of simply reacting to what is happening.
What’s particularly interesting is that the characteristics of a successful trader, such as being competitive and aggressive, can also be potential pitfalls. A highly competitive trader might have trouble staying calm and collected while in the middle of a nasty losing streak, eventually resorting to overtrading or over-leveraging just to make his or her money back.
What separates consistently profitable traders from the rest of the pack is that they are able to stay in control of their emotions and trading decisions. According to my favorite trading psychologist Dr. Brett Steenbarger, one of the best ways to achieve this zen-like state is to turn trading rules into habits.
At first, it may be a challenge to strictly follow one’s rules concerning position sizing, leveraging, stop loss placement, and risk management. If you are desperate to make up for your losses, you could feel tempted to go over your specified total risk per day or to trade with no stops. In this scenario though, you should remind yourself that trading is all about taking trade opportunities when they present themselves instead of chasing the market. After all, you have absolutely no control over market movements but you are in total control of how you prepare for any scenario and react to them.
Dr. Brett Steenbarger compares trading to dancing with the markets, wherein traders must accept that the market is taking the lead. When you attempt to lead the market by anticipating future price action, you could fall out of step and miss out on more profitable moves. What you need to work on is getting the timing right and staying in sync with the market’s movements.