These practices might be holding you back during trading hours.
You’ve started trading, developed a routine, and found a comfortable rhythm. Still, you may not be seeing the success you anticipated. Could it be the market, or is there something you can change about your methods?
Even the most experienced investors and traders can develop habits that inhibit their performance. Fortunately, with some practice, traders can replace them with a more productive approach. Though each trader may find an individual method that works for them, some traders might find nixing these habits helpful.
NOT TRACKING PROGRESS
Whether you’re preparing for a trading day, reviewing your past decisions, or planning for the future, putting time into your strategy outside of the market hours can be advantageous. Having a plan may keep you organized and prevent you from making emotional or irrational decisions.
One way to understand the patterns in your trading habits is keeping a trading journal. Be sure to measure entry and exit prices, market conditions, and total profits and losses.
The markets are not always kind. Unfortunately, some traders retaliate with an anxiety-induced response that may actually lead to more loss.
Revenge trading is when a trader loses, then attempts to make up for the loss by immediately entering a larger and riskier trade. This is dangerous because it doubles the loss if you lose, and if you win, it justifies trading with your emotions instead of your logic. That means you may be likely to make equally risky trades again.
To avoid revenge trading, remember to stay disciplined. Document the reasons you lost the trade in your trading journal so you can review them when you’ve cooled down. Moving forward, be sure to create an environment where logic rules over your stress by establishing a routine of pre-market analysis, trading during the major market hours, and end-of-day habits.
While some traders feel a surge of adrenaline after a loss, others may feel dejected. With risk comes the potential for loss, and that can be a blow to anyone’s ego; however, if you protect yourself, the loss may not feel as detrimental.
After developing a trading strategy to your risk tolerance and investment objectives, rebuild your confidence by implementing appropriate trading limits or stop-losses and tighter trailing stops. If your current strategy isn’t working, reevaluate your plan, study the markets, and re-strategize.
NEGLECTING THE LOSSES
When stocks are doing well, investors tend to monitor their portfolios with keen interest. However, when the stocks are losing value, investors tend to neglect them. While riding out the storm during a volatile market could be helpful, ignoring a falling market may leave you in a precarious situation.
The need to sell everything in a frenzy during a stock market crash is unlikely but selling some stocks may be necessary. Evaluate why a stock is falling — is it the result of a temporary panic or an indication of a longer trend? If the value might continue to diminish, it may be time to sell.
GOING ALL IN
No matter how confident you feel about a trade, spending all of your capital at once can be foolhardy. Exactly how much you feel comfortable risking during a trade can vary with each person, but most traders only risk about one to three percent of their account in a single trade. And before the trade, be sure to establish your entry and exit points, your set capital for the trade, and the maximum loss you are willing to accept.
If changing your methods seems difficult at first, don’t worry; breaking a habit takes time. Yet being honest with yourself is the first step to recognizing what may be holding you back while trading.