Forex traders take countless decisions throughout the entire trading day, such as whether an entry should be taken, whether a stop loss needs to be moved, and where the target must be aimed at.
At crucial moments Forex traders are inclined to take hasty and sub optimal decisions due to impatience, time pressure and lack of clarity in their plan.
This blog posts attempts to help out by providing tips on how to stay calm and remain focused during the entire process of trading, not just 99% of the time.
TRADING PLAN IMPORTANCE
Most of the trading decisions should be clearly outlined in the trading plan. Trading is a two-step process where traders set up their trading plan beforehand and then execute their plan during the trading day. This document is an important rule and guideline book to keep the head cool and focused on the most profitable decisions in the long-run.
During the heat of the trading battle; however, taking decisions can become more ‘messy’. Forex traders tend to make emotional decisions, which are often counterproductive in the long-run.
Non-discretionary trading plans focus on setting up non-negotiable rules, which allow traders to make decisions quicker and with less stress. Discretionary trading plans have fixed elements too, but do allow more flexibility and freedom of choice during the moments of trading.
Difficulty in taking trading decisions often arises in 3 cases:
- In areas where the trading plan does not specifically explain what trader should do;
- In areas where the trader has difficulty with implementing the trading plan;
- During individual trades where traders might have the urge to abandon their trading plan.
Ultimately problems arise due to a trader’s psychology OR the lack of clarity in the trading plan. In all cases traders must avoid emotional and impulsive based trading.
Forex traders run into trouble when a decision must be taken immediately. This is the ultimate pressure point which precedes impulsive and emotional decisions during trading.
The pressure slowly grows as the trader is analyzing and reviewing the charts:
- A thought suddenly enters the mind which forces you, the trader, to consider a decision right now and quickly;
- The market does not pause and wait for your decision to be taken, which can amplify the nervousness around that decision;
- The longer it takes to take a decision, the more the internal pressure is created and the more difficult it will be to remain calm;
- This, in turn, increases the chance of an impulsive emotionally based trade decision.
I think the internal pressure to make a decision quickly increases when traders feel they do not have sufficient time to reflect on a decision. Those moments happen most of all during these times:
- The market is moving fast (momentum);
- The volatility of the market is high;
- A trader is scalping;
- A trader expects to miss out on a trade opportunity;
- A trader expects to lose their trade;
- A trader expects to lose their profits.
To avoid the problems connected to making quick decisions, traders need to regain control and patience.
REGAIN CONTROL AND IMPROVE PATIENCE
The ultimate goal is to create space and time in your mind, which in turn allows you to take decisions without creating an internal pressure. Ideally traders take decisions from their comfort zone. This is a mental state where traders are not pressured in making hasty conclusions but take informed and well balanced choices.
An essential component is the importance of removing the necessity of making a decision NOW. Nothing is an emergency in the Forex market if you adhere to strict risk management principles (unless a black swan event hits the market). Here are tips that could help with maintaining calm and patience during the process of trading:
- Traders need to work on recognizing the moment when they feel compelled to make a decision now, soon or quickly;
- Traders must implement a trade plan that they feel comfortable with;
- Traders should trade a time frame where they have enough time to reflect on their plan;
- Traders should take deep breaths and take regular breaks away from the computer;
- Traders should not needlessly look at the charts as it could create emotions;
- Traders can implement the ‘wait 1 candle’ technique.
WAIT 1 CANDLE TECHNIQUE
A simple technique to gain a higher level of patience is to wait 1 candle. As soon as traders recognize the moment where impatience starts, the rule states that traders must wait one entire candle before making the decision.
Let me explain with an example: trader ABC is trading on the 1-hour chart. He recognizes that his trade is not going his way and this feeling pressured to move the stop loss. The rule states that he must let the current open candle and the next one 1-hour bar candle close before making a decision. This time frame is a mere example and the technique is valid for each time frame.
The advantage of being forced to wait for the next candle is that it compels us to take time for our choices and it avoids impulsive and emotional decisions. This technique is a supportive crutch if traders cannot create the space and patience by themselves. Obviously the concept will not miraculously turn all setups into winners. 🙂 It simply intends to create more time for trading reflection and trading plan implementation.
Conclusion: impulsive and emotional decisions are created in our own mind. Most of the time the problem occurs in 1% of the cases when a trader feels under pressure to take an immediate trading decision. Traders however should aim for staying calm and patient during trading to optimize results. The wait 1 candle technique is a rule that allows traders to regain a calm mindset.
Do you have moments when you feel ‘forced’ to make a decision NOW?
How do you solve it and what do you think of the wait 1 bar technique?
Do you have other ideas that would help traders with remaining calm and patient?
Thank you for sharing this post with other traders. We appreciate it.
Wish you a great weekend and Happy Hunting!
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