The success trading includes three components : 1) A set of High Probability Indicators (HPI) to produce High Probability Trades, 2) Consistent implementation of your trades 3) Appropriate management of those trades.
HPIs are a combination of indicators or forex patterns that allow you to predict, with a relatively high precision the direction of the market over some period of time. The successful traders know that they have to keep it simple, so they employ two or three High Probability Indicators. The traders can use specific chart formations such as the rectangular pattern or triangular pattern. For instance if you recognize a Rectangle Forex Pattern you can predict, with greater accuracy than not, that the price will go up at the end of that pattern. Of course, the pattern recognition should be based on the set of characteristics and assumptions rather than only on visuals. Furthermore, it is good to combine pattern recognition with one or two of the technical indicators. For instance support and resistance levels and the 200 EMA are among the most effective indicators. Perhaps the area that requires more is that of candlesticks. Mastering them to the point where you can recognize them automatically, will greatly benefit you.
If you have a set of two or three verified HPI to the market direction with a greater than 65% degree of accuracy, then the only thing left to do is apply your strategy and control the trades effectively. However, this is where the system may fail. The emotional side of trading often destroys a perfectly balanced trading system.
For instance, when the trade moves in your direction you either watch it achieve your price objective and then stew in remorse and anger because you missed out on the trade or, you chase it and get in too late skewing the risk/reward ratios against you. The position gets stopped out and the loss is exaggerated because you got in too late.
Perhaps you’ve got a winner on your hands where you are short multiple contracts. You think the position has “home run” written all over it, but you can’t perfectly explain why. However, your strategy says that you get out at a certain level. Part of you wants to cover the entire position to lock in a nice profit. The other part of you wants to let it all ride. Be obedient to your rules. You will cover your full position at the prescribed level and sure enough, within two days, the market breaks hard. These magic curve never rallied high enough to the point that your original buy stop would have been filled. Here comes the frustration of “I shoulda-woulda-coulda stayed short”.
So how can a trader who already has the first component of the trading equation (a set of proven HPIs) go about putting behind them the emotion that derails their ability to execute their trades? How can a trader successfully tap into their intuitive side to allow themselves to maximize a position’s profits while also being prevented from jeopardizing their account?
Let the market do its thing. It’s not very often that you won’t have to take some heat on a trade. It’s a great feeling when a trade goes in your favor immediately and stays that way. But that’s the exception and not the rule. As a good friend of mine would say, “Let it breathe!”
Isolate your feelings, emotions, and inclinations to tinker with the trade. The best way to do this is let go of the mouse and pick up a pen. Record your thoughts to explore and understand why you are fighting the urge to adjust your prescribed parameters.
Focus on your strategy both mechanically and intuitively. Establish strict rules even when you allow yourself to trade intuitively. For example, one-half of your position must meet my first profit target and be filled. This is very important: when allowing yourself to trade less mechanically.
Also read Forex Trading Psychology
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