Nobody likes taking a loss, because no one wants to feel like a loser. Some traders go out of their way to be correct 99% of the time, taking tiny wins, but ultimately failing when that one big loser wipes them out. There is in my opinion something worse than letting a winning trade turn into a loser because this result is a veiled and sneaky loss. One which can be mentally chalked up to being better than a loss. But ultimately is another way of not maximizing the potential within the markets.
I am an emotional trader and to get around this I have automated the process of trading as much as I can. The less I do in the markets the better for my equity. This has been proven time and time again, and each time I re-enter in a discretionary way, something negative ultimately happens. No one ever dies, so this is all a personal tragedy!
What have been or continue to be my biggest downfalls?
Over Leveraging / Position Sizing
Not Following My Trade Plan
Following Other Traders
Taking one at a time and starting from the top.
Mindset: To me, this is when I have a fundamental bias, I personally have an opinion, and I tell myself the trade will work out eventually. Or anything else going on in my head between the opening of a trade and the close of the trade/account.
Over Trading: Sometimes it is pushing through too many trades instead of being satisfied with my daily winnings. Other times it is revenge trading trying to get back to at least Break Even for the day but making it worse.
Over Leveraging/Position Sizing: Many times I have been in a winning position, to only give it all away with a big-sized bet that ultimately goes against me. If you think Martingale or Kelly Criterion you can understand how you go from trading 1 lot, to 10 lots, but if the risk is greater than the previous rewards, it can all go horribly wrong. Trying to make back a smallish loss with a big bet is also a massive guarantee of how to fail. Especially if you are me.
Not Following My Trade Plan: This ultimately comes down to my discretionary trading now. But before it could have been a blend of gambling, or jumping between strategies. Not really allowing consistency to show through either as wins or losses. It was all random. Automating a trading strategy means, you get to think about the rules, test the rules, and then possibly adjust the rules in a data-driven way. Any other way of trading and you start from scratch each time.
Following Other Traders: Sometimes we can get enamored by other successful traders. Especially those that only tell you about their winners. Failing to reveal their losers. Following a trader into what they say they have done, only to realize they have bailed on the trade and you haven't, is gutting for the beginner. I would avoid following anyone's trades. It is much better to try and understand the logic behind their trades and then make it your own.
Hesitation: This is the grey area for me now. And ultimately what lead me to write this post. Today's trades in the forex market were Buy USDJPY, Sell EURJPY and Sell GBPJPY.
This breaks down to Long JPY x2 Short JPY x1. For me USD, EUR & GBP crosses have not been favorable to my strategy, hence why I am concentrating on the JPY. Because there are 3 JPY crosses involved, I have positioned them carefully so as not to be too long or short of the yen. The trading logic is all mapped out and I do not personally set the entry, stop, or take profit.
For a better understanding of how to not make these silly mistakes, I would recommend reading up or listening to people like Steve Ward or Bret Steenbarger. They walk you through how to get a better mindset and do it much better than I could.
Now have you ever heard the phrase "Don't be a dick for a Tick"?
Today I was that Dick. And this is the way my brain played it all out.
EJ hit the target. UJ was long but within the range. GJ was following EJ lower at pace. The short GJ trade looked like it was about to hit the Take Profit, as the bid price line kissed the TP level. The 5-minute candle didn't close at or below the TP and I was watching it like a hawk. The hesitation came from the conversation in my head. "Don't be a dick for a Tick", "No let the trade play out, the EA is running this". "Getting to Break Even is a good compromise". "I won't have let a winner turn into a loser, this is a good idea". "I can't, not win something from this trade, it either hits TP or my BE stop".
Of course, the trade ultimately went to my BE stop level. Having been 2 pips away from hitting TP. Resulting in giving back >90% of the open profits for that trade. Did I have a red number at the close of the trade? No. Did I give back 0.7999% of my open equity? Yes. So I lost around $900.00 because I HESITATED and didn't just close out the trade.
Now some purists would agree that I did the correct thing, by letting the EA run the show. And if I had been away from my computer the EA would have ultimately hit my SL anyway. But I think the real point is the EA is there to stop me from making silly rash decisions, and to keep my position sizing in line with my account. It stops me from overtrading and just randomly following either my gut or other traders. I am still the one in control and for me, I should have just closed the trade out and taken ~$900 out of the market. Rather than talking myself into ultimately losing money that could have made up for 2 actual losses in the future. Writing this is my way of hopefully cementing that thought into my head, and hopefully, those that read this.