Are you finding that you’re ditching your forex trading plan more often than not? Instead of just chalking it up to a discipline issue, you might wanna check out these other reasons too.
The first and probably most common reason why traders fail to follow their forex trading plan is due to sheer panic. Yes, there are times when a trade goes picture perfect and you capture the full move down to the last pip. However, more often than not, trades don’t go as smoothly as you would hope.
When the unexpected happens, some forex traders get nervous and surprised. This can cause traders to lose focus and act on impulse and do something that isn’t part of the trading plan.
To avoid acting on impulse, a trader should account for ALL potential scenarios before entering a trade. You should have a plan of action for any scenario. This way, nothing will be unexpected and you will know how to react and not panic.
2. Winning or Losing Streaks
Another instance where forex traders deviate from the trading plan can occur due to losing or winning streaks. The lack or surplus of confidence can cause a trader to view a trade setup without bias. If you were experiencing an extended losing streak, you may pass out on several good trading opportunities. Conversely, if you had just put together a string of nice wins, you might feel confident and invincible, causing you to take trades that are not valid under the trading plan.
Keeping a psychological journal can help you manage your emotions. Remind yourself that your plan is based on preset rules. Remind yourself of the risks involved whenever you deviate from this plan.
3. Lack of Trust in the Plan
At times you feel like following your trading plan is merely an option. There is nothing binding you to follow the plan and there are times where you feel that the trade won’t “work” if you stick to the plan. As a result, you take trades on gut feeling, only taking certain setups and not taking ones that don’t “feel right.”
In the long run though, this defeats the whole purpose of having a trading plan, which is supposed to give you an edge. Without an edge, your trading account gains will be marginal at best or worse, in the red.
One way to fix this problem is keep a detailed trade journal and track down your statistics. It is hard to argue with cold, hard statistics. Once you see that your trading plan does work and is yielding positive results, it could give you more motivation to stick to the plan and follow through.
4. Plan and Personality Mismatch
Lastly, there may be times where you feel forced into taking trades because your trading plan dictates so. Or, on other side of the spectrum, you aren’t taking as many trades as you due to lifestyle considerations and other obligations.
This can lead to inconsistent trading, as you are only sometimes following the rules. This inconsistency can and will hurt your bottom line.
At the end of the day, you have to consider whether or not your trading plan is for you. By this, I am asking you to ask yourself, “Does my trading plan match my trading style?
You might be using a mean reverting system but you actually like following the trend. Or you may be insisting on taking day trades, even though your other commitments suggest you should be a swing trader.
You have to know your own trading personality and match your trading personality to that. Once you determine your trading personality and your trading style, you will take one step closer towards being a consistently profitable trader.
Following your trade plan at all times requires more than just discipline. You have to make sure that it’s the right fit for you, that it takes all possible scenarios into account, and that you have the numbers to back it up. When all those criteria are met, it will be easier for you to trust your trade plan and stick to it.