When everything is going awesomely well – A time of great peril.
Experts do the right thing and novices do the other thing…
Expert traders have been through the draws down in their account and they know that taking profit is a very important part of trading.
As part of their focus on continually refining their system and on the process of executing their trading plan, their trading system will get better over time. As their system improves they will go through periods where everything goes according to plan. They have a sequence of winners, one after another and their trading balance increases steadily.
At these moments, expert traders know that are in great peril.
When novice traders experience a series of good wins, they get excited. They tend to increase position sizes and take more risk because they know they are trading with profits.
In these circumstances, novice traders throw out their trading plans and go for higher and higher risks and larger positions. This often leads to losing trades and their trading balance falls back to where it started before the series of winning trades. This can create a loss of confidence and many unhelpful emotions.
In contrast, expert traders become even more focused on their trading plans and execute them rigorously. They know that success over time comes from doing what works and once they know what works they do not deviate from it.
They reward themselves emotionally for correct execution of their trading plans and keep doing so over an extended period of time. A few wins in a row may be pleasing, but not an excuse for slippage.
The more winning trades an expert trader has, the more carefully they follow their trading plan and the more attentive they are to the market.
This is important information for novice traders. By learning to manage your trading emotions when you are doing well, you will ensure your trading yields long term success.
How to use this information
If you have had a series of winning trades, with each winning trade you should focus more on your trading plan. The more you focus on the correct execution of your trading plan the longer you are likely to keep your winning streak running.
If you have had a series of winning trades you should also pay close attention your risk profile. Resist the temptation to take large positions because you have had a series of winning trades. This is very good way of giving up your profits to the market.
This topic and much more is covered in the “Clear Mind” trading course by Trading State Pty Ltd. Go to http://www.tradingstate.com.au for more information on the next course dates and cities.
