Think Like A Trader Blog

Thursday, 27 August 2015

Don't Fear Missing Trades

One of the biggest problems I faced when I started trading was that I was plagued by a certain amount of fear. This was clearly built on a foundation of lac of knowledge and experience, but there’s more to it than that. A lot of people learning how to trade have an innate fear of ‘missing trades’. They have an expectation that trading should be like everything else they’ve tried in their life in that it should keep them busy and be hard work.

My main problem was that my fear of missing trades resulted in me losing a lot of trades, and this is a common outcome. You take trades where the entry criteria isn’t quite right because the market moves in the direction you expected. Say you wait for a pin bar but instead you get a doji. The market then breaks the low of the doji candle and you enter short into the market, not even realising you’re doing it, just not wanting to miss the move.

The result? Invariably you will have losers. Of course you will. Your trading plan should be designed in a way to give you an edge in the market. So if you change the plan, your edge dissipates. But even worse than the losers, more dangerous, are any winners that you may have whilst doing this. The bigger the winner, the larger the problem!

After a winner achieved whilst disobeying your rules, you begin to accept subconsciously that you can catch moves simply by predicting the market. It makes you more likely to disobey your rules and to chase moves. I found it was even worse if I was having a bad day. So say I was down twenty points on the day and the market reaches my trading zone. I’m waiting for an entry, hopefully one that will clear my losses, but it doesn’t come. It’s not one of my candlestick patterns or it doesn’t line up quite right. But wait, the market is still moving the way I expected, I’ll just jump on this once, I need to clear out these losses. I wont do it again, just this once.

And more often than not…the trade loses.

Always remember that your trading plan gives you the edge, not you. If something doesn’t fit your plan, just skip the trade. Every time you disobey your rules, your results suffer. Don’t think about short term results as in day to day. Think about monthly results. Sure you may be down 20 points today, but over the month you know that with your plan you are likely to make X, Y or Z. But if your system is say 70% success rate, and you take trades outwith your system…your win rate drops accordingly and it becomes much more difficult to come out ahead.

Don’t worry about missing moves. You’re not trying to grab every point from the market, only execute your plan flawlessly. If you can do that, your profits will take care of themselves.

I hope you’ve had a great trading week!

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