Don’t Fall in Love with Your Forex Trades
ARE YOU IN LOVE WITH YOUR FOREX TRADES?
Do you find it difficult to exit a losing trade, convinced that it will turn around soon in your favour? Traders are told that to be successful, they have to cut their losses and let their profits run. So why is it that we tend to do the opposite? If you go through your account over periods of loss, most of these will have come from trades you exited far too late. If you fit this bracket, then success will not depend on finding the right methodology, but rather on your ability to ruthlessly cut your losses.
The other side of the coin is not being able to take your profits. Most traders think the most important signal is the entry signal. But knowing when to take profit is just as vital. Imagine you are in a winning trade. You wait and wait and greed overcomes you. You feel almost paralyzed. All the times you exited too early and you kicked yourself flash before your eyes. This time it won’t happen again you say to yourself!
So whether you exited too late because you let your losses build up or whether you exited too late because you were pushing for more and more and allowed your profit to slip away, the result is loss.
The more we have invested in something, the harder we find it to let go. We hang on hoping that it will work out eventually so that out original investment is not lost. Or we hang on caught in our expectations of landing a big one. If you refuse to define a loss or liquidate a losing trade and you refuse to define what profit looks like, then how can you exit your trade?
So do you know what a loss looks like? What does profit look like? Predefine what profit and loss are in every potential trade. Determine what the market has to look like or do, so that you know when your trade is clearly not going your way or has given you all it has to give. You have to learn how to let the market tell you how much is enough, instead of assessing the potential from your personal value system of how much is enough. Confront the possibility of being wrong and consequently not avoid the inevitability of taking a loss or cash in when the time is ripe. So confronting and accepting the inevitability of a loss and knowing when to take profits are trading skills. Which can be learned and should be because they form the foundation of all you need to know as a trader.
Why is it so difficult to let go of a trade? From a logical point of view, one can presume that when a trader finds that he or she is letting his losses run repeatedly, and his or her profits dwindle away, it is because – perhaps also on a subconscious level – that the trader believes that it is in some way beneficial.
But we are making one big assumption. And that is that the trader has a choice. Instead of ‘cutting losses small’ and taking profit when all the signals are screaming out loud, such as hitting support, the trader is choosing to make the wrong choice. But does he or she have a choice? The trader is not exiting too late because he or she chooses to, otherwise the problem would have been solved the first time the trader heard about it. It is rather the trader cannot help him or herself. But why? The answer lies in our upbringing, and in particular, what we were taught and what we learnt about success.
We were taught to win, not lose. We were taught not to give up, to be decisive and determined against all odds. With this mindset we approach the market with the desire to conquer it with our powerful intelligence. We are determined to persist until the market gives us what we want.
In addition, the more we have invested in something, the harder we find it to let go. Think of that relationship we knew was doomed…but we hung on. Our gut says out, everything says out, but we refuse to give up. If we were to, we say to ourselves, it will all have been for nothing. But all we get is more pain……
This explains why so many traders lose all their money before they quit. ‘Cutting losses and profits short?’ That is only for the meek and mild!
This also explains why most traders spend hours studying charts and searching for new indicators, trying to find the secret to success that no one else has. That is why we spend so much money on books, courses or seminars. But when we have found a methodology that suits our time needs and personality, it still doesn’t necessarily convert us into that consistently profitable trader. For even though using a methodology with a proven ‘edge’ such as price action is extremely important, giving the disciplined trader clear guidelines for entry and exit points, for the trader who cannot cut his trades, the largest determiner of trading success lies elsewhere. Trading skills can be divided into anticipating market moves and executing them. Your charts, your methodology and your gut feeling give you the information you need to read potential moves in the making. Traders tend to concentrate most of their energy on these skills and it is the subject most covered in seminars and books. This is to the detriment and neglecting of the actual trading part, ie executing your trade. Think of it like this. Independent retail traders trade their own accounts for their own profit. And their preoccupation is to anticipate market moves. But there are brokers too, and a good broker is sharp and alert and will execute the orders he has been given with speed, decision and efficiency. Imagine a novice uncertain broker who is unsure what to do. Would you entrust your money with the experienced or novice broker?
So to be successful you have to be able to both anticipate market moves and execute them without hesitation. There are various scenarios. The trader could anticipate well but have poor execution. Or poor anticipation and poor execution. Or poor anticipation and good execution. Or good anticipation and good execution. It is obvious which one is the most preferable – the latter. But which one are you? Most traders are good at anticipating but poor in their execution. And they lose money because of it. So we need to develop the attitude of a good broker when it comes to the actual execution of our trades. A broker is judged by his execution skills, he and his client are only concerned with his ability to execute efficiently. Our goal should thus be to focus on executing trades with ruthless efficiency. Think about the money you have lost. It was probably due to poor execution rather than poor anticipation.
Do you trade out of frustration and anger? Do you move your stop? Do you not act on an opportunity and watch helplessly when you see you were right? Do you fail to lock in profit? Do you let a winning trade turn into a losing one? Do you hang on to your trade and find it impossible to admit you were wrong? If you do then it is your poor execution rather than poor anticipation that is to blame. To succeed, eliminate these mistakes by concentrating on executing your trades flawlessly. Assess your trading on your execution. Focus on perfecting the buy, sell and exit signals of your chosen price action trading method.
If you Enjoyed This Lesson and want to learn more about Trading Forex with “Price Action” strategies please check out my comprehensive forex course, in it I teach advanced price action setup trading strategies along with a beginners guide to forex and price action.
34 Comments Leave a Comment
This is what i call a brief explanation on trade Timing.Welcome to Serengeti National of Tanzania.
you know what..i scare to watch TV when they air about flood in queensland as I will join the course and I think about you Nial..the guru that will help me…Thanks God everything ok with you..say my greeting from Bali to all your family..I’ll have you Bintang when you in bali someday…cheer!
God bless you are not in the devastated area. Excellent and helpful articles. Thank you very much. Reading your articles change my attitude to profitable and consistently in trading.
Thank you for the amazing article. This just happened to me yesterday and I really needed this “slap in the face.” I’m confident that I take profit well, but I hold on to my damn losses way too long and kick myself every time. I searched the internet high and low for months on end, then I came across your page. Your depth of knowledge and approach is bar-none the most useful tool I’ve encountered. Thank you and I will be furthering my learning with your course in the near future.
I agree with Dave. The same thing happened to me thrice. And now, I look at the charts and go with what I believe it is telling me. Even if ALL the gurus are saying otherwise. So far, am making a small profit. My problem is that I tend to exit too early – out of fear the trade will turn!
This is very good advice. But still confusing is determining when a trade that goes along with a long term trend is just correcting or when the trend is ending. And that is not “falling in love with a trade”, as much as just chart experience.
Thanks again for a nice article. After I,ve reaced my Take Profit target, I often trail my stoploss from that point to squeeze the rest of profit out of the rally. You are right. Most of trading is a matter of disipline and trade management.
Nice to know about your safety. Thanks for the great articles. Glad to have you have as as my mentor, using your strategies i am doing good in demo account, will go live trading with small amount.
Thanks Nial,indeed, you are God sent.It is awesome to have you as my mentor.one day am going to invite you to my country,NiGERIA .God bess you
Only 10% of the people made it in this business. I’m not in that 10%, but I’m getting better each day. I have to read Nial’s articles everyday to keep myself focus.
Oh!yeah am in love with my wining trade at all time,fore as long as my price action setup show me another opportunity is there for profit taking. THe mark of a good trade is to be in love with the right trade.cheer
we have to be dispasionate about our trades just like the market is emotionless.Thanks Nial as you continue to make traders happier.
You must be inside my head. You seem to come up with information at the right time for me. I do get attached to my trades and watch them like a hawk. I know we put on a trade with limit and stop – there is nothing we can do to move the market by staring at our screens. This year it is my resolution not to be so emotionally attached to trades but to treat my trading as a business.
Thank you for all your articles – I really take on board what you have to say.
I have made all those mistakes. Reading your article brings back good and bad trades. Lately I have improved by backtesting on a bar by bar. I have entered a trade then everything changes with a new setup and this often is successful.
Does your trading course have a section devoted to trading psychology as well as trading strategies or methodologies?
Again, thanks for the article.
I see nothing humorous in Sacharias’ commentary. My condolences to the suffering families.
I have not enrolled in your course because my “trading funds” are depleated ($50k so far). You have helped me considerably, with your generosity in posting these very helpful training article and video opportunities. Perhaps my two-year Forex adventure will result in success after all?
Also glad you were not affected by the devastating floods in your area. I too feel for the families that have lost so much.
I have spent the last week doing just this. Practicing execution of my trades. Having a pre-defined entrance and exit strategy based on my edge variables allows me to know exactly how much I’m willing to lose and how much I would like to make on each trade. The key is knowing when to exit when either is occuring.Stop losses and profit targets are the extreme ends of my trades. They set the boundaries. But I have to manage the trade inside those boundaries consistently to be successful. Thanks again. Happy New Year
Right on! This has been my greatest challenge since I changed my focus and awareness from outside to inside.Uncovering and looking at how I feel and what is influencing my perception. Uncovering what my beliefs are about myself that distort my perception. Its how I feel and what I believe, that I see, that I do. Either reactionary and emotionally or from a calmer more peaceful aware state of mind. I am making the choice to center myself before pulling the trigger in trading as well as the rest of my life.
Thanks Nial for all your support
I don’t usually post on forums or websites bit I just wanted to briefly say I love your posts. They are really helping my trading.
you are really great, I have been kept losing on forex market for many years. but I love this this market.
even I quit my job, though things got worse day by day.
It had better to meet you earlierly. you teached me much.
Thankyou for your helpful articles, I have become consistently profitable in small way, in recent months, getting my head around trading psychology , slowly but surely, we all want to be disciplined traders,to be “ruthlessly efficient” I think will take me some time yet! As this market will mess with your head if you let it. Thanks and keek up the good work– Mark
Hi Nial, First thing i just like to send out a big nice one to ‘Zacharias’ who has posted the first comment on this article, I must say its made my day.. that was a very funny comment… But i do hope that things get back to normality soon over there because i do know how bad that situation is as we here in spain have that problem every winter with some rivers in some Regions.
Any way, Yes nice one! good article and very important points, I must say that yes! set and forget is a great way to set your trades, but yes it is very important to monitor those trades and act accordantly and quickly as they develop or don’t develop and specially as they reach resistance & support levels! for me how price reacts near these levels is the key to staying in or getting out, when it starts to smell of resistance i don’t hang around to find out. their is a saying! better 1 bird in the hand than 2 in the bush….
Hello dear Nial!
Your valuable,informative and educational articles,which i’ve been reading for several months by now,are exelent.I appreciate them and your work very much.Big thanks for that.
All the best in the New Year wish you
Excellent article, fits me to a tee!! I have to change..or suffer the way of many “traders” and be out forever. Thanks for reminding me of the obvious! Also, prayers for the people who are struggling at this time.
I just love your articles! They keep me focused and positive.
I have been having prblems with exiting losing trades, not being able to exit without at least being in profit is a sure way to depriciate your trading account.
Your article is going to help me with this.
I really agreed with your views .Same thing happening with me. very helpful .Thanks
Great article. I just went through this, this week with a AUD/USD short trade that went against me. My problem was I listened to “technical experts” who said the market was going to 1.03 or as high as 1.05. My gut and reason told me that the trade would come back in my favor and at least let me out at break even. Operating on fear that I was going to lose more I took a loss of 290 pips. Had I trusted my gut I would have got out just 2 days later with a small profit. I’m a newbie and have the problem of trusting the word of online experts instead of trusting my own analysis and gut feeling. More times than not my gut was right. The big problem I have now is letting it go and moving on. Each day that the AUD/USD goes lower I get more angry at myself.
It is really a brilliant article… i understand the importance of patience after this article.
An interesting article. I used to enter a trade, 15 minutes later think I have made a mistake and close. Small loss. Later in the day the trade would have worked out as I originally thought. Now I only enter on a limit price, with sop loss and profit take. If triggered I try to let it run.I will let the trade hit its stop loss, but still not have the confience to let it run to profit target.The reason I close is its made a profit,not that it hits support.I do take onboard what you say. Many thanks Mike.
Hi Nial, Happy New Year and many successful trades. I AM in love with my trades, I actually would call myself addicted. But I hate losses (no, I don’t welcome them as some mentors suggest) so I get rid of them, strictly. So, cut the next loss (small) and go for the next winner (big). That’s the name of the game.
I hope that you guys recover soon. I just realize how huge Australia actually is when I heard that the flooded area is the size of Germany and France together.
Perfect written as always -and so true.
nice to know that you are still okay and posting articles after what happened in your town!! It would be devastating for the Forex community if you die!!
Great article as always!! :-)
My thoughts are with the Families who have been in trouble these past few weeks, it’s really sad what has happened. I am completely fine, and well thanks for your comment.