Your trading plan is one of the most important parts of your trading strategy. It helps you pinpoint the exact entry and exit point without hesitation. In order to remove any hesitation or doubt, it’s important that the rules of your trading plan are clear, easy to remember, and follow. Many new traders don’t bother back-testing their plan before using it. That can be a very expensive error. Since this is the tool you use to make money, your trading plan must be clear, concise, and back-tested so that you can have total confidence and be able to execute in the blink of an eye.
So, let’s say you have the perfect trading plan that tells you exactly what to look for, a trading plan that can be executed easily without falling into the traps of greed, fear, or denial. Still, you are not following it. Why is that?
There are many reasons why traders are not able to follow their trading plan. Here are some of them;
Your Trading-Plan is Not Aligned with Your Personality
If your personality longs for predictability and certainty. you should not focus on short-term volatile stocks that behave in unpredictable ways. If you are a calm, long-term thinker, you might be better off with trades that are not volatile. Ask yourself: How comfortable are you with taking a short-term risk in other areas of your life? Are you overall a gambler in personality, or do you prefer less risk, and more predictability in your daily decisions? If that is the case, try to choose a trading style that is more aligned with your personality.
You Don’t Have True Confidence in Your System
If you don’t have total confidence in your plan, you will easily doubt yourself and make unnecessary expensive mistakes. A good way to gain confidence is to go back to paper trading. I know it’s boring, but sometimes it’s necessary if you want to stay in the game. So, go back to paper-trading for the time it takes to regain complete confidence in your trading plan. When you feel comfortable with your paper trades, and when you have a track record of success (meaning you are able to follow your trading plan without hesitation) go back to real trades, but start with small-size positions.
Your Trading-Size is Too Big
If you get in with too much capital, you might easily feel stress or anxiety even at the slightest move in the wrong direction, and that may cause you to take action in unpredictable ways;
- Maybe you freeze and don’t dare to make a move, and therefore lose money.
- Or maybe you get so scared that you exit with a loss, just to remove the pain.
Size down your position to a lot you are comfortable holding. Don’t think about making money quickly. Rather build your trading account slowly, and increase your position size slowly to fit your tolerance.
Fear of Taking a Loss Runs You
It can be hard to see your hard-earned money dwindle away. If your trade is not aligned with your risk tolerance, you will easily get unfocused, freeze or make unnecessary mistakes. Some traders set their stops too close, only to see it turn on them as soon as they are out. Others may set their stops too far out, losing more money they can afford. If your fear of loss is compromising your trading, please get in touch. Sometimes a quick chat can solve a big problem.
Your Expectations Are Too Big
We are bombarded with news about people who make big money in the stock market. Don’t listen to it! Do NOT expect to make thousands of dollars. Be the turtle – not the hare, that’s the best way to protect your capital so that you can invest again tomorrow. Don’t be greedy, but remember to celebrate each little win.
You are Too Invested in the Outcome.
If you are too invested in the outcome, you will take every move personally. You may rejoice if it moves in the right direction, and you may freeze in fear when it moves in the wrong direction.
You cannot expect to be profitable on every trade you make. That is just a fact. You need to be ready to take a loss, it’s part of the game. But the size of the loss needs to be in alignment with what you are emotionally able to tolerate. Most people are not born traders. Our personality is not suited for trading. That’s why discipline and emotional resilience in trading is so important. It will help you leave your emotions out of the trade.
Some Actions You Can Take
Here are some actions you can take when you freeze in your trading and don’t follow your plan:
- Don’t work on your trades during the trading day. Set up your trade outside of the trading hours. Remember to set your stops, and then leave the screen. Only watch your trades before and after the trading day.
- Remember to breathe and be present in your body at all times. We have a tendency to stay in our mind, but, strangely enough, that is not where we make our best decisions.
- Learn EFT-Tapping. This great little tool, at the tip of your fingers, can help you stay more focused and emotionally aligned so that you can make better decisions throughout your trading day.
- Assess your trading personality and choose a trading style that truly suits you.
- Down-size your position to a level that you feel more comfortable with.
- Go back to paper-trading for a while to regain focus and confidence.
How to Move Forward
So, what do you feel comfortable with? Perhaps you need to down-size your position. Perhaps you should go back to paper-trading to regain your focus and your confidence. Or, perhaps you need to be more present in your body. You know best. If you want to learn more about EFT tapping, go to YouTube or contact me.
