If you ask a trader about their trades, most would probably agree with the fact that their impulse sometimes overtakes their intellect, which, a lot of times, ruins the trade. The trading done by a trader is affected by their impulsive behaviour which usually lacks farsightedness. Such impulsive trades are usually made on a whim often lacking analysis and only based on hopes of earning.
Most traders scuffle with the repetitive impulsive trading problem. They may build up extremely detailed trading plan incorporating their risk appetite, entry and exit level, and stop loss level, but when they enter the market, they tend to take a decision based on what other traders are doing-fearing losing out, desperate hope of swift earning, and anger. The encapsulation of such factors often brings synergetic effect increasing the impulsiveness of a trader and that often takes the winning trades away from them.
Completely eradicating the impulse of a trader is unjustifiable for a human trader, as human have an emotional touch on any activity that involves money, but attempting to reduce the impulse is certainly possible. A trader can follow the following steps that help in minimizing the impulsive trade behaviour.
1. How and when did you concoct the trading idea?
You have to consider if the chart set-up is the one you have developed with the trading analysis or is this an idea that you have stolen off an exchange discussion? Moreover, you should try to avoid trades without analysis on your part. A trader can always trade without a plan but such trading would not be profitable at all.
2. What is your plan for the trade- entry/exit/adjustments?
One of the thing that distinguishes successful traders from others is the preparation of the trading plan. It is crucial to start preparing a trading plan entailing your risk tolerance level, the amount of capital you may risk for a single trade, entry point, stop loss level, exit point, etc. Ask yourself whether you have such entry-exit plans or not? If no, you have to seriously consider preparing a trading plan and work accordingly.
3. Are you profitable while trading on a whim?
Take out some time to conduct research on yourself. Discover if the trades that you have made before on your premonitions and see exactly how profitable they were. Only a few people are good at whim and their whim might usually bring them a fortune. However, you have to observe your trading records and find that.
4. What is the real purpose behind conducting the trades?
Comprehending the reasons for making the trade is crucial for any trader. At times, trader trade in light of the fact that they are bored. Understand whether it is exhaustion? Outrage at past misfortunes? Endeavouring to battle back to breakeven? Successful traders trade when they are have conducted required analysis on the market and have an idea about its trends and patterns. Thus, for an impulsive trader, it is beneficial to understand why they are trading which is the initial move towards changing their impulsive behaviour.
5. What amount of your funds are you risking?
It is a prerequisite that you don’t over-invest on any one trade. It is like “putting all the eggs in a single basket”. Such type of behaviour is extremely risky for your entire portfolio and is not viable in the long run. Thus, you have to consider that you take positions in multiple securities, and avoid the risk of investing a big amount of funds in a single trade.
If any of the above-mentioned questions made you think about your trade for the second time, it is probably a good thing to know. With this, we have recently vanquished the ravenous side of your feelings with the intelligent and logical planning. The real benefit of experiencing such activity is to dodge the “Trade and Pray” plague, where you enter the trade at first and later expect that everything goes according to your game-plan.
These 5 simple questions will shield you from squandering significant cash on trade which is not effective at all. Following such simple strategies will control your trading psychology and your portfolio will acknowledge you later.