Being creatures of habit, we frequently conduct our lives in predictable patterns. Our daily routines keep us on track, from washing our faces when we wake up to going to bed at a set hour. We establish a pattern for how we interpret and react to information while trading forex. Our ability to make decisions can automate itself depending on parameters we are accustomed with, leading to recurring trading patterns.
Go back to the worst deal you ever recorded in your trading diary. Consider the trade setup, what went wrong, and your motivation for entering the trade. Instead of listening to the market, you could have made an impetuous decision based on your own way of thinking.
It’s possible that your worst deal wasn’t the one that cost you the most money. When you held off on making a deal that may have been the deal of the year, it might have been a wasted opportunity. Or when you prematurely completed a trade, preventing it from realizing its full potential. Alternately, despite signs indicating the next deal would be profitable, you may have caved in out of fear of losing and executed a losing trade.
Another unfavorable mind pattern is when you stop caring about losses and keep making trades blindly to make up the losses. If not stopped, this revenge trading can develop into a negative habit that can cause large drawdowns.
The typical response to bad trades is to move on to the next deal, bury the memory of the failed deal in the back of our minds, and comfort ourselves that we will be better prepared the next time. Yet this is insufficient! You must force yourself to evaluate all the ins and outs of your bad trades. Determine the emotions that led to your poor trading choices, recognize the patterns of bad behavior, and take steps to change them.
Although giving up negative trading habits might be challenging, doing so can help you learn to manage your emotions and improve as a trader. Keep in mind that we learn the most and improve as traders through our poorest trades.
