I would like to discus very common problem I encounter in trading. The problem is that many new traders don’t like to take action when it’s needed. I often see a trader that brilliantly evaluates the market situation, pointing to exact moments of entries but then fails to take that last step to act upon his analysis. Usually such traders would take an action when it’s to late to enter the market. After making such a mistake they can’t even explain their behavior. What’s more often traders even can’t make a decision to act. They make up any kinds of excuse to explain their hesitance to take action. What’s the reason for such behavior in trading?

The reason is their emotions and lack of a trading system. The traders who hesitate to take a trade usually do not have any trading system or their system do not give them exact signals to act upon them. Let’s take an example of a trader using the following trading system: he buys a currency pair when %R indicator is somewhere between 0 and 10. He sells a currency pair when the same indicator has the value between 90 and 100. Looks like a pretty viable trading system. However as you can see this system does not give exact information about the entry point.



Actually it’s not even a trading system. It just an evaluating tool that calls for trader’s attention to take a closer look at the particular currency pair since it’s in the overbought or oversold state. Therefore one could expect a change in direction of price movement. As you can see it’s a typical system that based on idea of predicting the market behavior. Therefore it is doomed to fail. If trader follows such system that means he will define entry and exit points arbitrary. It is at this point his emotions like greed and fear play their destructive tricks on him.

First greed will act. A trader sees that parameter of %R has reached the level 10. It looks like a signal to buy. But trader sees that %R continues to drop. He thinks the lower the parameter the bigger will be the movement and decides to wait more. Now when %R stops at the level 5 fear kicks in. He is thinking now “what if it will not go further down but go up then I lose money” (fear)? Or “what if it will go further down than I will lose an opportunity to make more money” (greed).

Therefore there is only one method to control his destructive emotions. It’s a system that gives him clear and precise parameters to enter and exit the trade. All he needs to do is to follow his system to the letter. No matter what emotions he is having. No matter what voices in his head he is hearing. This is the only way for sure-fire success in trading.

Author: Albert Schmidt
Article Source: EzineArticles.com
Provided by: Pressure cooker



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