In our daily lives, we tend to fall into repetitive habits. We kick off our mornings by washing our faces (well, at least I hope you’re doing that!), have lunch around noon, wash our hands post-meal, and head to bed at a set time. These routines keep our days flowing smoothly.
As creatures of habit, forex trading is no different—patterns emerge in how we process information over time and how we react to it. Take a simple example: some folks might fib to their partners just to dodge a long-winded chat, even when they’ve done nothing wrong. Heck, even kids spin tales to avoid trouble.
This isn’t because they’re inherently dishonest, but rather, they’ve trained themselves to respond in particular ways in certain situations. How does this relate to trading? Well, bear with me here—you might cringe, but go ahead and revisit your worst-ever trade in your journal.
Examine that trade setup, ponder what missteps occurred, and bravely ask yourself, “What was I thinking when I took that trade? Was there any thinking involved at all?” Oftentimes, that trade may have been executed almost on autopilot because it mirrored a familiar pattern—your own thinking style dictated the decision, not the market signals.
Now, your worst trade doesn’t have to mean the one with the largest monetary loss. Sometimes, it’s about that golden opportunity you hesitated on or when you cashed in too soon, missing out on bigger gains. You might have backed out due to your fear of loss, even if the market was screaming that this trade was a surefire winner.
Another pitfall is becoming so numb to losing that you dive into trade after trade, hoping to recover your losses. This revenge trading becomes a vicious cycle leading to significant financial setbacks if unchecked. Typically, after a poor trade, we shrug it off, just like we might with those high school rejections (though not that I faced a lot of those). It feels easier to box away the memory of a bad trade, self-assure you’ll be ready next time, and then leap into the next trade.
But that approach just won’t cut it! You need to dig deeper and dissect every inch of your bad trades; otherwise, you risk spiraling into the same errors again and again. No matter how daunting, reopening your trade journal and confronting tough questions is imperative:
“Why did I enter this trade?”
“Were there valid signals guiding my exit?”
“Is ‘How you doin?’ really a terrible pickup line?”
Alright, maybe that last one is more for your weekend dilemmas, but you get my drift! By evaluating the emotions tied to poor decisions, you might uncover patterns and take steps to rectify them. Shaking off bad habits and poor trading practices isn’t easy, but it’s crucial for mastering your emotions and becoming a savvier trader.
