Impulse Trading

January 3, 2006 by Trader Rich

I was reading an article by John Carter in the January 2006 edition of "Stocks, Futures, and Options Magazine" and I can swear that he was talking about me.

Though I have been profitable since starting my forex project, I can’t say that I’m the least bit confident that I can trade full-time. The reasons why are mainly mental. Carter mentions how traders must understand the psychology first, and then they can learn about the setup. "It’s like two pieces of a puzzle, and these two pieces have to snap together snugly in place before the trader can expect to trade for a living without repeating the same mistakes over and over again."

Carter’s best teacher was the market and what it had to offer to him: pain and suffering. He gave back his entire trading account 3 separate times before he sat down to try to figure out what he was doing wrong. During this time, he read The Disciplined Trader and Trading in the Zone by Mark Douglas and found them to be eye openers. What he learned was to stop focusing on making a million dollars and focus more on the setup. Your not going to make it all on one trade. His first revelation was to do two things differently:

1. Take the profits away. At the end of the week, wire any profits out of your trading account. This focuses you on producing a steady income as opposed to a making a grand killing.

2. Start a competition among the various setups you use. You can measure your performance and continue to use the setups that work. Dump the ones that don’t.

Finally, he mentions what will cause my goal to NOT be reached, impulse trading. Impulse trading is when a trader has no plan whatsoever. They just go long when it feels right or short when it feel right. The pull from the market to be a part of the action is just too strong to resist. I was doing just fine today with a couple of successful setups and a profit of $1000 before I had a few consecutive losses. I lost my head and before I knew it, the $1000 was gone. It wasn’t that I was trying to make a million dollars on one trade, I was just trying to make back what I lost.

I won’t go down that easy. My goal will be reached. I will not be an impulse trader.

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