What is it about trading that makes it so difficult to take action? Even managers and leaders of men can falter when it comes to placing a trade in the market. Being frozen and unable to pull the trigger is a common feeling, particularly with novice traders.
There are a couple of reasons why pulling the trigger can be difficult. The most obvious one is that you are attached emotionally to the funds in your account, and hate to put them at risk. If you cannot afford to lose then you cannot trade effectively. You should not be using funds that you will need to replace your car next year, or even pay your mortgage this month. If that is you, then go away, and come back when you have amassed some money that you can “play” with.
But the more likely subconscious reason that you may hesitate to pull the trigger is that you are afraid you could be wrong, and that would make you feel like an idiot and foolish. This is the last thing that you want to put yourself through, and the only way your subconscious sees to avoid it is not to make the trade in the first place. If you don’t take the trade, it can’t go wrong; therefore there is no chance you will feel like a fool – in this respect, at least.
You may need to make a mental adjustment. Some trades will be losers, as no one can anticipate the direction of the market all the time. What you need is confidence that you will win in the long-term, because you have developed a trading plan which works overall. One useful tip to overcome your reluctance to pull the trigger is to set stop losses and commit to following them in every situation. That way you can know that your possible loss has a hard limit.
How do you develop confidence in your trading? One way is by developing your competence, studying books, subscribing to newsletters, taking part in traders’ forums and attending courses. These are all fine and good but in my opinion the most important ingredient to having a high level of confidence is to have a trading method that you believe in and a method that gives you an edge in the market.
You need to understand your trading plan, and how your chosen strategies are intended to work. You can build up confidence in the plan by careful back testing, and this will also allow you to become at ease with the fact that a proportion of the trades will not succeed, yet the plan makes money overall. This gives you license to make failing trades, as long as they are in accordance with your plan, and accept that they are part of the process of making a profit.
Moving on from the planning and back testing stages, you can start in the live market by trading a demo account, and making sure that you achieve the same results over time as your back testing indicated. I highly recommend that you make at least 25 error free trades in demo mode before you even consider trading with real money. Once you have traded a demo account, you still have not felt the strength of the emotions that using real money can evoke. When you are comfortable with the mechanics of implementing your trading plan, it is time to put it into practice, and I recommend you ease into this by using very low risk, until you feel you are mentally able to cope with larger stakes. The forex market is a great place for a beginning trader to start because you can place very small trades, using micro-lots basically risking pennies per trade.
Developing the right mental attitude to trading allows you to keep the inevitable losses in perspective, and not dwell on them. Thinking about losses can paralyze your actions, making it difficult to close a losing trade and realize the loss, or to pull the trigger to open the next trade. Focus on executing your trade plan precisely and exactly as you have laid it out and the edge that your method has built into it will pay off.