What are some of the hurdles traders have to face? How do they overcome these on the road to becoming successful? Well, let’s take a look at a one in this week’s article.
One challenge many traders will have experienced is reaching a milestone level in their trading account and then struggling to move beyond it. For example, a trader may have lost money in their early experiences but have now turned a corner and their account balance is moving back up. The original starting balance becomes the target they want to reach. ‘When I get back to my original capital level, then I can relax’ you often hear them say.
The problem with this (as logical as the plan may be) is that they are placing a great deal of importance on that level of account balance so that when they do get back to that level, something starts happening. They just can’t seem to breach it and the account balance falls away from it again. This can happen several times as the trader struggles emotionally with the fear of giving back their profits at this milestone level. So they enter a cycle of reaching that level in their account, then subconsciously tightening up with their trading, not wanting the level to drop again, only for the very thing they don’t want to happen to indeed happen.
Why does this persist? Because they are placing too much importance on account balance at this stage and then will make mistakes such as placing stops too tight on new trades or trying to cherry pick only the best trades only for them to in fact miss out on perfectly fine opportunities. With regards to stops, it’s interesting that by tightening stops so they ‘don’t lose much if it’s a losing trade’, they end up more likely to lose because they’re not giving the trade room to breathe.
The result is a trader who has got mentally stuck with a given account balance level. By placing too much focus on that, they have stopped doing what was working well before – simply focussing on the trades and allowing the outcome to sort itself out. As many professional sports men and women will say, ‘focus on the process and the reward will take care of itself’.
So my advice? Stop looking at the account balance and placing too much emphasis on given levels. Accept that we all have winning and losing trades but if we trade according to our plan, our account balance will, even with losing phases continue to rise over time. Next week, we will look at transitioning from small account balances to larger ones and dealing with position size…
Moving over to the markets, the USDJPY has been winding up quite nicely between two trend-lines on the daily charts. At some point it will want to attempt a breakout of either the declining trend-line across the highs or the rising trend-line across the lows. If it breaks the overhead trend-line, we could see a swift move towards 106. Alternatively, if it breaks down, a run to 97 would certainly be a potential. For now we wait to see which way it breaks…
Charlie Burton
Ezeetrader
Join the trading room for two free days – click here
Be the first to comment on "The challenges facing traders Part 1…"