Most newcomers, making their first transactions on the market, do not even think about the fact that they are ruled by such feelings as greed, fear, hope, uncertainty or vice versa, false confidence. Time goes by and a beginner learns that there is no place for emotions in the market and any emotional trading will sooner or later lead to a complete loss of the deposit. The way out, it would seem, is simple – system trading. Indeed, trade yourself according to the system and don't be nervous every time you enter the market. But, despite the simplicity and obviousness of the solution to this problem, most traders persistently continue to lose deposits. What's the matter?
The trader takes the system, tests it on the history and sees that the system works, and quite well. Starts trading on it. At first, everything seems to be going according to plan, but not so much time passes, as a trader suddenly notices that if he entered the market earlier and left later, the profit would be greater and the losses less. Well, isn't that a reason to adjust the system to make it better? And it started ... then I went in before the system had time to give a signal, and then I came out so beautifully, right at the peak. As a result, earnings are significantly higher than when trading on the system. And then the trader comes up with a brilliant idea – to leave everything as it is in the hope that it will continue like this.
But the market did not take long to wait – after 1-2 months, the trader suddenly notices that his trade has become unprofitable. And his adjustment of the system only worsened the already bleak situation – instead of double earnings, he now has to suffer triple losses. The trader is at a loss what to do – return to the original system or continue trading according to the new rules? Without thinking twice, the trader decides to trade using the initial trading system, as it will be more reliable. Trading continues, but instead of profit, losses again, what to do? What if the system broke down?
So, the first mistake of a trader is a violation of the rules of the trading system. And this happens, firstly, because of the lack of discipline. Secondly, due to the fact that the trader does not trust this trading system, he starts trading manually. At the same time, traders then often say that the price seems to hypnotize them and they can't do anything. About how to solve this problem, a little later. In the meantime, let's continue.
Read more: Why do drawdowns occur in trading and what to do with them?
In search of the best trading system
Here the trader has an idea – it's just that the first system was unreliable and it's better not to trade on it, but to look for something better. He goes to some forum and sees that each trader works according to his own system, but at the same time different traders use different indicators. Some trade only according to the trend, while others, on the contrary, work in flat. Some put a small stop loss and a big take profit, while others, on the contrary, put a small profit and a big stop. Some work using various indicators, others are sure that the indicators do not work and therefore it is necessary to use graphical analysis.
The trader has a question – why does everyone have different tools in their arsenal, isn't it easier to choose the best ones and use only them? It is not strange, but the choice of trading instruments and trading rules primarily depends on the psychology of a person. For example, some traders feel more comfortable when they have a small stop loss. And let it work more often than profit, but the main thing in one transaction is not to lose a lot, and profit will still block everything. Others believe the opposite – the main thing is to take a profit and it doesn't matter how long you have to sit in the minuses. Even if 2-3 loos work, there are still so many profits that any loos will eventually be blocked.
The situation is also ambiguous when developing a trading system. Some traders sharpen their vehicle for a specific stock (or currency pair) and trade using, for example, 5 trading systems (one system per share). Others, on the contrary, develop a system (for example, a trend one) and select 5 stocks for it, on which a good trend is developing at the moment. And, of course, everyone believes that he is doing everything right. And this is right – after all, every trader should choose for himself the tools with which he can work.
What unites all traders trading on the system is that they know in advance where, when and under what conditions to enter and exit the market. But, even with a system, some traders still cannot withstand the psychological load and begin to "improve" the system in real time. At the same time experiencing feelings such as fear, uncertainty, greed, hope, excitement. Let's look at them in more detail.
Uncertainty
Any trader knows that his system will not make a profit indefinitely. Over time, the market changes and therefore the system also needs to be rebuilt. And it should be done on time, but not too early and not too late. Uncertainty appears due to the fact that it seems that the system is no longer working as well as before and therefore it needs to be helped - that is, to switch trading to manual control (to trade along the way, and not according to the system). And over time, such "help" becomes a habit, so much so that it is no longer so easy to give it up.
The easiest way out of this situation is to create an Automatic trading system, which contains all the rules of trading. But even this does not always save, as there is concern that the adviser will lower everything. Therefore, the only correct way out is to trade on the system that you can trust. If you are not sure that the system is profitable, you either need to modify it, or replace it with another one, or, at the very least, abandon trading altogether.
Read more: Intuition in trading on the stock exchange and forex
Fear
Fear is a pretty strong feeling. After all, most of the instincts of self-preservation are associated with fear. When trading, a trader may have a fear of a losing trade. In this case, he will always want to close the position as soon as it goes into the negative (protecting his capital) or close early if the deal is in the black ($ 10 is better now than $ 20 in an hour). The fear can be so strong that a trader decides to close a position no matter what (including the trading system that should be followed), since the loss of another dollar becomes simply unbearable.
What to do with fear? To begin with, try to open a position (immediately set LOS and profit) and close the terminal. After several deals, we can conclude – "I didn't climb and everything was fine, so it won't be a big deal if the price moves up and down without my presence."
Or another option is a small trading lot. It's not so scary, even if a stop of 2-3 dollars closes before your eyes. Well, lost, so lost. The more loss, the greater the chance of profit, which will block everything. And if the profits do not overlap the loss, then this is another story and it will be discussed another time, but not now, when the deal is open.
Greed
Show at least one person who would not want to earn a lot in the market! Very much! Here it is – greed. I want to take everything at once. And take much more than the trading system can give. After all, it often happens that a deal has opened, the price has passed 30-50 points and that's it, a closing signal. And the market has moved on! It was possible to take 2, or even 3 times more!
Of course, it's good to take a triple profit, but it's quite another matter – how often does it happen that the price goes much further than the established take profit? If often, then it is worth reviewing your vehicle and making adjustments. If rarely, then you should not change the vehicle. In any case, do not just stupidly move the take profit further and further, while only warming up the feeling of greed "now I'll take the profit to the maximum!!!".
How to overcome greed? The answer is simple – finally understand that trading on the system as a result will bring more profit than a one-time profit taking, at least 5 times more than the established take profit. Also think in advance, and what will happen if the price goes wrong? Maybe a confident profit is still better than trading with the hope of "earning a lot"? By the way, when you calculated the profit level, what were you thinking about then?
Read more: Why do 90% of traders lose on Forex and binary options?
Hope
How often in life we just have to sit and hope that everything will be fine (after all, we cannot change external factors). So it happens in the market. I opened a position, it went into the negative and the thought appeared: "What if, as soon as you close a deal with a loss, the price will turn around and go in the right direction. The result will be a loss instead of a profit!!!" The result is moving the stop loss away so that it suddenly does not work. As a result, it turns out that the ratio of take profit to stop loss increases sharply in the direction of loss. And as a result, one loss eats up a significant part of the deposit. Of course, the price will often turn around and go in the right direction (fueling hope – "I knew that the price would turn around and go in my direction"), but literally a few significant "bites" from the deposit can lead to sad consequences.
How to deal with hope? There is a trading system that is based on transaction statistics. And if in most cases the price goes this way, and not otherwise, then at least hope, even if you don't hope, it will most likely continue to do the same. At least until the moment when the system is working.
Excitement
The feeling of excitement is strongly expressed among gamblers. First of all, it manifests itself in the fact that the gambler severely violates the rules of money management. That is, it enters the market with a large lot based on a large jackpot. Gamers are very fond of pipsing (entering the market for a few minutes), while they experience a rush of adrenaline. Also, after the transaction closes, they either have a feeling of euphoria (if the transaction closed in a plus and it turned out to earn 30-50% of the initial deposit or even more at a time). Or a feeling of depression, especially if the transaction was the last one. The result for all gamblers is the same – a complete drain of the deposit.
What to do with excitement and gambling addiction? Yes, probably nothing. If you have the strength – close the account and delete the terminal from the computer. If not, then continue to play.
In fact, gambling addiction is so serious that it is unlikely to do without a psychologist. But again, from my own experience, I will say that a psychologist will try in every possible way to persuade you to quit this bad occupation (and at the same time offer to undergo a full course of "treatment", of course, for a fee).
Read more: Six types of traders in financial markets
How to trade with profit?
And the conclusion from all of the above is simple – if you want to trade with profit, look for a profitable trading system, check it, trust it and trade strictly according to your trading system.