Friday, May 1, 2009

Self-Sabotage

There are so many trading systems that have a very high probability of success.

However, two traders could be trading the same exact system and one would be profiting whilst the other could be netting a loss.

Why? I've realised it has to do with trading psychology and money management strategy. Technical analysis is only one facet of trading.

How the trader reacts to different trading conditions as well as how he or she manages positions are two quintessential parts of the trading equation.

It took me a while to learn some basic technical analysis. I really didn't want to do it at first. My broker almost had to force me to do it, really. Anyway, now that I started doing technical analysis, I can't go back to anything else.

Just when I thought that I'd found a reasonably reliable trading system, I noticed that I suddenly couldn't trade any more. I just didn't see the setup that I like and so I took some time off - a few months to be exact.

When I decided to start trading again, I kept making bad trades. It wasn't like I was just having one bad trading day, but a prolonged trading drought coupled with major missed opportunities that could have yielded some great profits. Case in point: ETFC shares that I purchased at $1.35 and sold at a very minor 1% profit. Anyone following ETFC knows that it shot up above $2.5 recently, which would have doubled my money. I've been waiting since last November for this. I usually like to move my stop to lock in some profit, but instead just mindlessly exited the trade practically at market price.

Another case in point: a EUR/USD short based on my favourite trading setup - the classic bearish divergence, which to me is the equivalent of the little black dress. I noticed it happening on EUR/USD, shorted it, got stopped out and shorted it shortly thereafter. I got stopped out again and noticed another opportunity and finally thought - maybe the third time would be the charm - or maybe not. So, I didn't short it again - et voila the third time would have been the charm.

As if you needed any other examples, a third one would be today - a terrible trading day with no less than six trades all on GBP/JPY - stopping and reversing numerous times. What was I doing?

To make a long story short, I hadn't been admitting to myself that I have a major problem with self-sabotage. After doing an array of impulse trades that were like a series of punches to the face, I started googling self-sabotage and found a quiz. Yes, I forced myself to take this quiz and almost ended up in tears because basically all my answers pointed to a serious self-sabotage issue.

Here's the link to the quiz in case anyone is interested.

I guess admitting this here is my first step towards overcoming self-sabotage. No one likes to admit psychological barriers as it's definitely a sign of weakness. It's a little bit like admitting being a shopaholic.

But when you come to think of it, there are already so many factors out there that are out of our control. The one thing we can control is our mindset and that is critical to success.

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