Last updated on May 12th, 2020
If there was one word to describe why a trader may not execute their trading plan, it is fear. The fear of being wrong.
In a recent foundational skills to trading post, executing the trading plan when a trade sets up is one of 8 musts for a trader.
If you have been trading for any length of time, you understand that it’s impossible to take winners 100% of the time and avoid all trading losses.
For those just beginning to trade, the fact that you will lose is a lesson in itself. I know, while social media is lit up with rags to riches stories, it’s b.s.
All data on your charts is historical which means you’re only able to assess what has happened already.
Hindsight Traders – 100% Win Rate
As smart as you are you can never really know who is sitting ready to act and so a big trade or unexpected event can change everyone’s perspective of what a fair price currently is regardless of what has traded before.
Then there’s the fact that the market can make you wrong for a tick whether or not the trading concept for a specific trade was valid or not.
Until you’ve closed the trade, you cannot be certain that it will achieve your profit target. You may have done this or that once you see the result, but in the moment, we have to trust the prep work we’ve put into our trading plan.
Ego In Trading Is A Mistake
You will be wrong.
We know we will be wrong at various points in our trading, then what’s the reason why we often see traders having a hard time in “letting go” of unsuccessful trades?
Surely by knowing that we are all but certain to take losing trades on any given day, it should be easy to just click the mouse and exit the trade, right?
And I believe it’s not really to do with being wrong at all but all about the way in which a trader loses that leads to many of the problems they face.
FACT: Trading Is Not About Being Right
We have a deeply ingrained aversion to being made to feel/look like a fool. Perhaps this is down to evolution and the drive to be attractive to another human being.
People often revel in denigrating those who have said or done something silly or naive.
At many mainstream schools, much of the learning is focused on being right or wrong as opposed to reasoning (part of the problem producing capable people at the end of education – rather than people who have learnt to pass exams).
So it is with trading that:
- Not being made to feel like a fool
- Not having your money taken from you in a silly way
- Proving to yourself that you really do know what you’re doing
can become an anchor around a trader’s neck.
This taps into some strong instincts – ones which when we’re already in a heightened state of emotion, can be extremely difficult to negate.
The compounding effect of multiple experiences can lock you into negative behavior patterns until you’re able to recognize what’s going on.
Here is just a sample of situations you may be able to relate to:
1. Getting stopped out to the tick….again
You don’t want to be the sucker at the table who keeps getting their stop taken out right before the market moves to target. This can lead to trading on the edge to try to exit out of the position when your price starts to get traded out.
Another observation is where a trader just keeps moving their stop until they are so committed to the trade that they refuse to take the loss at all.
2. You skip parts of your trading plan
You take a loss because you missed an important piece of information that’s normally part of your decision making process because either you weren’t paying attention or didn’t prepare properly.
You want to avert this feeling of inadequacy and acting in a stupid way and so only take high probability setups – in reality ones which you feel will definitely be winners, so when they lose you either refuse to accept the loss or feel the market is out to get you – no matter how irrational that thought is.
3. You don’t ever want to miss a move
The market keeps acting in a certain way that it doesn’t usually do and you’re taking loser after loser because of this. You don’t want to feel like a fool when you stop trading and it reverts to its usual self so rather than sit on your hands, you keep trading and taking losers.
Either this or you start trading “off plan” which could be disastrous. You start to feel like you know what’s going to happen during the trade, so you mess with your plan “on the fly”.
4. Trading For Revenge
You take an impulse trade that ends up a losing and you know you should have followed your trading plan instead. Rather than trading your plan, you try to make up for it by taking further impulse trades while the hole you are digging keeps getting deeper.
If you can never truly be right on a trade, how can you ever really be wrong?
Trade Results Are Never Wrong
We appreciate we will take losses in our trading so what does “Never be Wrong Again” actually mean?
Trading is as much to do with changing your mindset and behavior as it is to do with strategies, money management and everything else.
Perhaps more so as everything else is dependent on how well you grasp these concepts.
Being right is NOT about taking winners and you can do some real damage when you profit with poor logic. Being rewarded for bad moves on your part will cause you to repeat the mistakes.
It’s about being able to assess a situation, what is more likely to happen next and apply a strategy properly and consistently where appropriate.
If your reasoning is sound and you take your trade, you have done the right thing in spite of the outcome of the individual trade.
You have identified your trading edge and given it the opportunity to play out in the market.
But if being right is about taking a trade and not the outcome then surely you can still be wrong?
Of course but not how you think you can be wrong.
Focus On The Act Of Trading – The Process
The point is that if you view it this way, your focus is on trading properly.
You can never be wrong about the outcome because you know it’s uncertain.
The only thing we can fully control in trading is when we trade and how we trade.
The proper way of being wrong….the only way in an uncertain environment..is not doing what we know we should do.
In order to give yourself the best possible chance of assessing an opportunity correctly and executing your strategy consistently, there are a few simple steps you can take:
- You need a clear and simple enough plan of how you will trade and under what circumstances
- Leaving the level of discretion to a minimum
- By monitoring market conditions (for example, as simple as whether the market is trending or consolidating) you can understand when the strategy is likely to work better and therefore what you should be looking for leading up to a trade.
You are never wrong – if you follow your trading plan.
If you have a strategy that has a genuine edge in the market, the most important step to success is being able to execute it effectively and eliminate trading errors.
These errors often stem from the strong emotions that come with being made to feel silly and can be averted by changing your mindset on what being right or wrong is all about.
Change yours and never be wrong again.