What most traders do not realize is that their mistakes are not unique. Rather, the mistakes can be summarized by two factors: Neglecting one’s methodology and trading based on intuition. This leads to overtrading.
In this article, we will examine why traders neglect their method and how to exercise more discipline and avoid intuition based trading.
- Avoid taking any trades that are outside your method. Trying to earn that “extra” based on your gut feel is nothing but baseless trading and could potentially lead to the loss of initial gains (if any).
- Don’t trade large quantities during lower volume time periods such as lunch time. Quite often during these periods markets can experience choppiness in which traders can get stuck in a loop.For example, a choppy, ranging market can have traders constantly reversing losing trades to try and recover losses.
- If losses occur, do not increase the size of your contracts traded. Many traders try to increase their leverage to make up for a losing trade. However, increasing contract quantity also increases the risk. It is suggested to always stick to pre-defined risk limits than to adjust quantities on the fly.
- Determine the best hours for your trading and do not trade outside of that. You will achieve the discipline and restraint that successful traders rely on.
The psychological traps of greed manifest themselves during profitable periods, and that is exactly what successful traders rely on. They know to a degree where other traders are most likely to feel euphoria, greed and/or desperation. So how do successful traders take advantage of these opportunities?
Experienced traders are traders who have compiled data over their trading career to understand what trading strategies work, why they worked for a specific market environment, and what type of metrics can signal these opportunities again. Reflecting on both successful and unsuccessful periods can help traders establish a rigid set of trading rules for different scenarios. Enduring unsuccessful periods can be an aid in gathering more data for analysis, and also to further reinforce trade discipline.
To sum this idea up, documenting your trading process is important whether you’re in a winning or losing period. Be proactive and use this data to lay out a concrete trading plan. A trading plan can increase focus, reinforce discipline, and provide a step by step procedure in cases of emergency.
There is a substantial risk of loss in futures trading. Past performance is not indicative of future results. FMZ-PM-141204
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