Do you have itchy fingers when trading?
Do you have the tremendous urge to push the button and enter a trade right here and right now? Most traders will recognize this emotion.
The market is on a roll. Price is flying in one direction, but there is one catch: you are not in the trade!
On top of things, you were thinking about taking that trade in the winning direction but decided not to… Ouch!
Let’s pause for a moment and analyze: needless to say, this situation is a recipe for a disaster. A doomsday scenario lingers around the corner… Your emotions run higher and higher as the pressure of the market moving into your desired direction is making your head spin.
Time seems to slow down… Every single price movement is creating a roller coaster. To make things worse the market is “out of control” and price goes yet again further. This time around, however, your patience cracks under the weight of the emotions and you jump into a trade right here and right now…
Above is an example on the chart: you were thinking of going long but decided not to do so until the very top (orange box).
HORROR SCENARIO EXPLAINED
Do you recognize this situation? Almost all traders have gone through the above process at one point or another. In most cases the trade ends up as a loss. Why? Because as soon as the trader jumps in, the market tops or bottoms out and it starts to retrace or reverse against their position (or at least in about 99% of the cases it does). The emotional tipping point when entering a trade is often when price keeps breaking into one direction. A trader’s urge to click the button becomes virtually irresistible. Ironically though, a trader cannot wait to exit the same trade only a few minutes later when in most cases the unavoidable retrace occurs.
PUSHING THE BUTTON
The above process is called “pushing the button”, which leads of course to the trade entry. In the scenario described above, the trader is late entering the market. The opposite also frequently occurs: the trade is too early with entering the market because they are anticipating a potential movement. This is called “chasing the market”. Both actually lead to the same problem… which is an avoidable loss.
Do not get me wrong – there is nothing wrong with entering a trade. Every trader is going to have to enter a trade; otherwise, there is no way to capitalize on the opportunity that the market provides. However, there is a correct and an incorrect process when entering a trade. The exact same holds true for exiting the trade, by the way.
Incorrect way: obviously the above mentioned scenario is the bad way of entering. Traders are chasing the market and chasing the trade. They push the button because they run out of patience and lose out on discipline. Their emotional capital is spent and their focus runs out of ammunition. The internal pressure of not being in the trade, greed (counting how many pips could have been made), mistakes from the past (not taking the trade earlier), and watching the chart roll away lead to the inevitable mistake of pushing the button.
Correct way: the trader uses their trading plan and the TOFTEM model specifically to analyze and judge whether a currency pair is trade-able that session or day. The trader waits for the setup and trigger to occur and plans their entry. The trader executes the trade when those conditions have been met and executes the trade management plan accordingly. The trader focuses on the implementation of the plan and does not get distracted by any internal thoughts that could lead them away from this goal. At the end of the day the trader evaluates whether their trading plan was implemented correctly.
With the correct way, it becomes obvious that the trader is focused on the plan and not missed opportunities or other distractions that cause emotional imbalances. In the ideal world, traders use the correct method every single time. Needless to say that even great traders can get side tracked on a bad day and might catch themselves trading with the incorrect process. How can this be solved?
A back-up plan is great because it allows us to combat pushing the button and chasing the market. Here is what I like to use when trading. Just to make sure, the most important method of combating emotions that leads to false and early entries is by developing your trading plan and then focus on implementing it. However, here is a back-up-plan, just in case:
- Monitor your emotions while trading. If you notice that your viewing of the charts is more intense, then your emotional state might be losing its balance.
- Take an occasional break from the trading and PC to regain focus.
- When the markets are creating emotional responses, stand up and step away from the screen so as to create more physical and emotional distance.
- When the market is creating an emotional balance, take a longer break outside from your office by going for a walk or walking the dog.
- At the moment that you are about to trade, double check that the trade is based upon solid trading plan reasons.
- Some traders will only enter upon a retracement, even if it’s only a small retracement of a 15-minute candle. Their motto is let it center before you enter.
- Last but not least, here is a trick that some traders employ: at the moment they have decided to enter the market they wait 1 extra candle (of the time frame they use for entry). Usually the bar that a trader enters on gets a retracement and they would enter at a better price. They would also take the trade if the price continued their way.
Did you recognize the scenario at the very beginning? Which rules do you use? Are there things that help you to avoid pushing the button? Thanks for sharing and for reading. Happy Trading!
Winner’s Edge Trading, as seen on: