Here’s an interesting thought that occurred to me on the way back from the gym today. Partly because I’m short right now on GBPUSD but mainly because it’s been quietly forming in the back of my mind for a while…
In trading there absolutely are a number of things that are totally within your control. I think that in the beginning of learning to trade even these things seem like some sort of voodoo science. Every small detail forms part of the elusive ‘holy grail’ which everyone starts off looking for in order to become an excellent trader. Let’s just get one thing clear straight off – there is no ‘holy grail’ and what works for me will not necessarily work for you. Bummer eh? 😉
However – salvation is at hand because (I’m finally getting to it) there really are a number of things you can do to elevate yourself above a great number of people out there who are also trading… or learning to. I think we should all be able to draw comfort from the following: –
- You can absolutely control the amount you risk you take when placing a trade. Just make an inviolable rule. I will risk no more than 1% of my account per trade. Now, my number is actually 1.5% because for me 2% sounds like too much (it’s a gut thing) and from experience, because of my account size, I like as much leeway as I can get on my stop losses. So, maximum risk per trade? It’s up to you. You control this. Bloody well use a stop loss!
- You can choose how you react to a loss (If you have one) so treat it as an opportunity to learn and get better. Do NOT pile back into the market like an idiot looking to make your losses good. Emotional decisions are usually crappy decisions…
- Accept that you don’t actually know whether the market is going to go up or down and plan accordingly. Along the lines of the following dialogue example “GBPUSD overall is in a downtrend and on three previous occasions has got close to 16,300 and dropped back. So I am going to short this with a stop above 16,300 risking just 1.5% of my account to make 3% return as a first target then moving my target down to 16,100 which is the previous low.” “If the trade goes in my favour I will consider bailing out at below 16,200 because there’s a lot of support here.” By time this happens I may well be asleep…
Now, actually points 2 and 3 rest on you reacting to the original decision of “I will risk no more than X% of my account per trade”. Just doing this and considering what you’re doing is probably the one thing I’d absolutely stick to in order to keep trading and so that you stay in there for the long run as you improve. Focussing on this one thing gives you enough power over this strange new environment to help make better decisions.
Psychologically having a sense of control is a deep, deep need linked directly to the fight/flight response and this has a huge impact on your overall sense of well being. Try making a trading decision when your lizard brain is running around like a lunatic in the background going “AAAAAAAAARGH! OMFG! We’re all gonna DIE!”
Yep, it doesn’t work because if there’s any part of your brain doing that your emotions will be all over the shop.
If all else fails you can repeat to yourself “I am only risking X% of my account, let’s make a positive decision whether this is a good trade to make and then place the trade” Hopefully lizard brain will get the message that this is no biggie and let you make a rational and stress free decision.
Personally I’ve found the voice in my head (audible learning modality, taking information in and internalising it by listening) to be quite a negative influence on my decision making when I’m in a trade or thinking of placing one. Interestingly I’m a very, very visual person (of course this helps with charts) but since my ‘eyes’ don’t have a voice (keep following me on this) the negative part of my brain gets too much airtime. So I’m essentially using my conscious, reasoning mind to exert some control over my emotional reaction (triggered by the audible voice in my head) by talking out loud over the part of my mind which has a tendency to be too filled with doom and gloom…
Discovering how to control what goes on between your ears when trading means, as you gain more practice/exposure to the process, your results will improve and lizard brain will chill the heck out.
Control risk = positive decision = sense of control = carry the trade through = less stress = happy lizard brain = kerching! (LOL)
Oh, and taking deep breaths also helps 😉