Execution Is Everything
I'm of the belief that the single biggest barrier to success for most traders, is themselves. Psychology is one of the aspects of this job that is discussed the least, and yet when you ask most professional traders, they will agree it is the most important to understand. Master yourself and the rest is easy.
As traders, we know that we must run our winning trades, and cut our losing ones. This is of course, more easily said than done. How many times have you been in a position where the chart is screaming at you to get out because your trade is not playing out as planned, and yet you sit there staring at the screen, hoping, wishing that itís going to turn around, that itís all going to come right? It happens to us all, it kills our profits, and it happens because we let our emotions take control of the trade. If we could trade without emotion, without caring about whether we were making or losing money, it would be easy to push the right buttons at the right time Ė to do the right thing.
At the start of my career I spent a lot of time trying to get to grips with this whole emotional side of trading. The biggest discovery I made, and one that should have been blindingly obvious from the start, is that we are not our feelings. Our feelings are a part of us, but only a part. We can, to a certain extent, control them, we don't have to let them control us. Once I recognized this, I found I could start to play with my emotions. For example, if I started to feel anxiety as an entry point approached, I acknowledged that that emotion was there and then either chose to switch it off, or turn it into something positive. Huh? Turn it into something positive, how do you make a negative emotion positive? Well, I channel that mental energy into something useful; I know that I can't control the market so becoming anxious about whether it will go my way it is pointless, but I also know I can absolutely control my execution, so if I direct my emotional energy at that, I wont have time to let negative emotion sabotage a good trading opportunity.
Now when I see a trade setting up, I think to myself "If I take this entry at the correct time, it doesn't matter whether the trade is profitable or not, I will have followed my trading rules and will feel good about that". I place the trade, put in my Stop Loss order, I know the most I can lose (and in fact assume that I have already lost it), and sit back and remain relaxed. The actual outcome of the trade becomes entirely irrelevant, Iím feeling very positive about the fact that I have followed my trading plan to the letter Ė Iíve done the right thing! If I make a profit, well that is a nice bonus, but I wonít allow any excitement to creep in because then I'd be letting my emotions take control again.
Controlling emotions in this way is not necessarily easy at first, but with practice it becomes easier. There are lots of techniques and methodologies that can help, some of them are truly excellent and I will share them with you in future articles.
Harvey can be contacted via his website, where you can also read about his day trading course