Thursday, 19 November 2015

The Danger of Miniature Move Trading


Reading Time - 4 Minutes


This is a recipe for disaster. I know it is a bad idea from experience. Traders know that it doesn’t work. I tell traders who email me about problems that this is a huge red flag. And yet so many people still do it!

What am I talking about? Well, I call it 'Miniature Move Trading'. It can come about because of several different reasons and I can almost guarantee you that if you have been trading for any length of time, you will have been caught out by 'Miniature Move Trading'.

The best way to explain it is with an example: Let’s say we begin our trading day, and we are aiming for 20 points, which will equal a good return based on recent market volatility. You take a trade in the morning, and wouldn’t you know it, it was the perfect trade. You close it out at 17 points. You followed your plan, you had discipline, you kept your emotions in check when the market looked like it was going to move against you, and now you have your reward.

But wait, you were looking for 20 points today. How frustrating. You are SO close. Only another few points and you’re done with a perfect day. It’s only a few points so your regular plan and strict rules aren’t really necessary. You’ll just jump in, scalp a few points and that will be it!

Sound familiar? I’m sure it does!

And what happens on the vast majority of times when you go against your well thought out trading plan? You take losses. Maybe you lose 7 points. And now you’re frustrated because you had 17 points and you were so close. It was just a silly mistake, you should have seen the signs that your entry was wrong. So you take another quick trade, just to recoup losses.

Another loss.

Now you’re breakeven or slightly down.

You take another ‘quick’ trade.

Another loss.

You get the picture. And I know that if you are honest with yourself, you WILL have done this when trading.

This is a problem you need to address, because it is a sure fire way to big losses. I don’t know why, but people decide that because it’s just a small move they need, they will abandon all common sense. And believe me, I used to do it as well! I’m not pretending to be all high and mighty.

Your plan is there for a reason. Mainly – and I hope this is the case, or your problems run a lot deeper – because it is profitable and it aligns with your trading style. So why would you EVER, even for one trade, ignore it? You have your own rules, and you're breaking the rules, YOUR rules.

Every time it happens, note your losses. Look at the damage they do to your account. Wouldn’t it have been better to just walk away from the computer? Isn’t 17 points close enough to 20 points so that you can just call it a day?

This can also happen after small initial losses. Your inner voice will chirp in that you just need to take a quick scalping trade to make back the loss. You’ll just ‘reset’ your day and start again.

These thoughts are common. And you’re reading this and thinking ‘sure, I’ve done that.’ And guess what? Everyone else is thinking the same thing. So if it worked, they would all be successful traders. But it doesn’t, because it’s part of the mindset of the 95% who fail.

Address the problems in your trading. Treat each problem as unique and work on them individually. Figure out what you’re doing and show yourself the results of your actions by looking at your profit and loss. Don’t be part of the herd that gets rounded up and slaughtered on a daily basis. All it takes is conscious effort and determination.

I hope you’ve all had a great trading week!




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