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Saturday, March 28, 2009

Acting on Impulse

Have you ever ditched your trading plan? If not, you should read this anyway because you're most likely lying. If you have, why do you think you're so "unfaithful"?

Do you blame it on your personality? Temporary insanity? Or an excuse that its' just part of trading?

You might actually be right. Thare are many factors that could contribute to your lack of discipline.

Depending on your personality, background, training, and experience with the markets, you may have trouble controlling your tendency to act on impulse

For some, impulsivity is in their blood. They have trouble concentrating. They are easily bored. They look for quick thrills for relief. For others, impulsivity is related emotional weakness. Some people have so much trouble controlling their emotions that they react impulsively out of frustration.

Temporary setbacks are inescapable when trading. When the extremely emotional trader encounters one of these setbacks, he or she becomes overly distressed, and may close a position early, or in a fit of frantic, make a major trading mistake that can only be fixed by closing the position.

No trader is perfect though. Any trader can act impulsive at times. Research has shown, for example, that when people are tired, they have difficulty concentrating. As much as your conscious mind cares about sticking to your trading plan, your unconscious mind thinks, "Who cares? I just want to get this over so I can chill out." Your psychological resources have been exhausted. When you push yourself to the limits, you'll have trouble concentrating on your trading plan and obeying it.

Other traders may be impulsive because they lack experience. You can't expect to stick with a trading plan when you don't what the hell you're doing. If you're new to forex, you'll lack confidence and feel uneasy You'll start hesitating to pull the trigger. You won't want to risk your money because you don't have that strong belief that your plan will produce a profit like seasoned traders display.

Trading plans must be clearly defined and easy to follow. When you have a n incomplete trading plan where important parts are left unclear, you'll have trouble following it. A trading plan should consist of clearly defined entrance and exit strategies. Signals that indicate how the trade is going are also important. Don't underestimate the importance of clearly mapping out a trading plan. You can't stick with a trading plan that you can't follow.

The winning trader is the disciplined trader. Disciplined traders stick with trading plans. They don't act on impulse. It's essential that you identify the reasons you find yourself trading on impulse. It could be your personality or it may just be situational, but whatever it is, you must gain awareness of these factors and resolve them. Once you control the urge to act on impulse, you'll trade more profitably.

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