By trade, I'm a currency analyst and trading instructor for DailyFX. However, you're going to learn an important secret about trading well. Trading is less about analysis and more about your attitude about risk and managing trades.
Today, we're going to begin a series through some crucial trading habits to allow you to make progress in your trading and hopefully, you're equity curve.
The first four articles will cover bad habits that must be quickly abandoned. In talking to tens of thousands of traders over the years, I'm convinced that overcoming bad habits need to be focal point of any traders new journey. After the bad habits are uncovered and a plan is underway in dealing with them, we can look at good habits to replace them with.
Bad Trading Habits
Many new traders blame analysis alone for their poor trading behavior up front. To be fair, analysis is part of the problem but nowhere near the amount of the problem to poor trading performance that many assign. One key reaon why analysis gets a majority of the blame is because it's the easiest to blame.
What's not easy to blame your poor performace on is the emotional reasons why your holding onto losing trades. The emotional bad habits that we'll break down in the following days are as follows:
-The need to be right
-Overleveraging your account
-Unwillingness to allow your edge to play out
-Emotionally Guided by your last few trades
Good Trading Habits
Of course, it's not enough to simply lose bad habits.
They need to be replaced with good habits. As you can imagine, some good habits are simple inverses of the bad habits previously mentioned, which will be discussed in following articles and some are new mind-sets that will allow you to trade in a more agile manner. Agility is a mindset that allows you to see what the market is currently providing so that you decide if the edge is in your favor.
Good habits that we'll discuss are:
-Trading with an objective and well-defined edge or trading system
-Owning the risk of every trade to the point where you'll easily cut a losing trade
Taking on Trading Habits
There are a few things you need to know before we look at attacking your trading habits. First and foremost, you must be aware of the bad habits you currently practice as well as you lack of action on the good habits. It may be helpful for you to assume that you have the bad habits and are lacking the good habits.
To successfully take on your trading habits, you must be able to first be aware of them and then identify your triggers. You can think of your triggers as the first thought through the door that puts you in a certain time frame. Many people who overeat notice that wondering around in their kitchen when they're not necessarily hungry is a common trigger that leads them to overeat. In trading, the trigger could be reading analysis that gets you really excited.
Lastly, we need to assign new habits or thought processes to replace the old harmful habits. Replacing bad habits with good ones once the trigger is identified is crucial. Otherwise, you'll be relying only on will-power which is inconsistent and could let you down when you need it most.
While some of the articles may not be comfortable to read, they should be helpful to you and your trading future.