A question arrives from Jin:
“I have no problem identifying high probability trades and opening them. My problem is FOMO* on a big runner. So I end up getting stopped out at evens or a small loss after giving 20,30,40 points or so back. Even when I recognise I should bank this profit. Can you help?”
This is a PERFECT example of the problem I see traders fight.
And it leads back to our old nemesis…
FEAR.
Some traders have a fear of pulling the trigger on a trade. They get everything lined up but talk themselves out of it at the last second.
Others – like Jin – have a fear of missing out. They hang on to the trade for too long and give back profits they could have made.
– – –
NOTE: I’m not preaching to you from on high here. It’s not like I’m above this mental fight. I’ve been through it all. The secret is to recognise what is happening and then come up with a strategy to help correct your actions.
– – –
Many traders use a single stop loss and a single take profit on their trades. It’s understandable. This is how almost ALL retail trading software is set up to work.
Example: If you pull up an order ticket on MT4 you get ONE box for your stop loss and ONE for your take profit.
But it leaves no room for flexibility.
It means your profits and mental satisfaction of calling a good trade rest on one single decision.
And let’s be honest… the likelihood of calling the EXACT high or low of a move is pretty slim.
So you can see how self-criticism easily creeps in…
“Dammit, if I’d only let the trade run I’d have made another £300 here!”
Or…
“I’m such an idiot. Why couldn’t I see the market was going to reverse at the trendline? It’s so obvious! Now I’ve given back all my profits and taken a loss.”
Beat yourself up a few times in this manner and fear becomes part of your trading process.
Not good.
So here’s something to try…
Scale out of your trades bit by bit.
You might manage your trade in 4 separate pieces. And your job is to find different exit spots for each of them.
Here’s how you might plan it out:
Piece 1 – set a take-profit at the very first support or resistance you can see on the chart. Reduce risk and take some profit. It leaves little chance of the entire trade reversing on you.
Pieces 2 & 3 – find a good intraday swing target. You’ve already taken profits on piece 1 so you’re in a good frame of mind. Let these next two pieces run to target but also trail your stop loss.
Piece 4 – this is your ‘speculative’ piece of the trade. Instead of using a hard target use only a trailing stop. It means the potential for this part of the trade to keep running is almost unlimited. It’ll help you get over FOMO*
Splitting up your trade like this does something valuable…
It helps you to tame a fear of losing and a fear of missing out… all in one go!
Give it a try. And if you need help with how to do it just let me know.
*(FOMO = fear of missing out)
