I had an interesting experience in the last 24 hours with a trade that really made me think carefully about the psychology of trading. There were two very different moments in the life of an open trade where the impact of ‘losing’ or being down £15 made a colossally different impact on me mentally.
So the trade in question was a short GBPUSD trade which was entered using one of my trend following strategies on a 15 minute chart. I am delighted to say it was a cracking trade and closed up almost £500 (5%). As all of you will know however, one of the biggest challenges when it comes to being a profitable trader is removing yourself from the period between placing or entering the trade, and closing it!
I am a keen golfer and have been for over 20 years. There is a saying in golf that is;
“There are no pictures on the scorecard”
For those of you not familiar with golf, what this means is that no matter how badly you get the ball from the tee into the hole, the score is all that is recorded. I mention this because this is what i had to tell myself during this trade.
Now trading and golf are similar in some ways but very different in others. In golf the ball is stationary and you alone are responsible for what happens next. In the markets you only have control over entry and exit and all the movement in between is out of your hands. This makes trading even harder to cope with psychologically as it sometimes feels like it is happening to you rather than you being in control.
So what happened I hear you ask…Stop droning on about golf and get to the trading stuff!
Well I entered the trade and then minimised the charts, account everything. This is because I am only a pathetic human and this is how I try to remove myself from the discomfort of the early movements of a trade. No matter how mentally resiliant you are it is tough to see that instant negative as a result of the spread and not feel enticed to watch it move. Then all it takes is a small move and you are hooked. Either “oh god it’s going against me, I know the markets were going to screw me over today”. Or “great job, already in profit, my strategy rocks and I am a trading god!”.
So I minimised my screen and didn’t think about it too much. I then fell into the trap of checking it quickly about an hour later and it was £10 in the green (or blue on my trading platform!). So then as hard as I try I feel a little bit like the latter statement above…just a tiny bit!
On I got with my day, nothing else to trade and no need to worry about the open position because as we had established earlier…I am a trading god now!
Later that day i flicked back to the trade and to my shock it was in the red…£5 in the red. Well I immediately pulled up charts and reviewed my entry. Was i right…had i followed my rules…what was going wrong! Thankfully with my clearly written trading plans and the reassurance of thoroughly tested strategies, I gave myself a slap, confirmed it was a genuine entry and set an alert for the exit signal.
24 hours later and the trade was now £275 in profit (I was of course on the verge of getting the ‘trading god’ T-shirt printed!). Happy days and on with my life. 3 hours later i checked it and it was down to £260 in profit. Did I care…hell no! I am still a god right.
I know this is a round about way to explain a reality that you will all be familiar with as traders, but just like the golf scorecard, the difference between these numbers (+£10 and -£5 and +£275 and +£260) is exactly the same. My scorecard tells be I am £15 worse off than a couple of hours ago.
So the lesson I have drawn from this is that if I have thoroughly tested my strategy, diligently record and monitor my results and have entered in accordance with my clearly defined plan…I must treat the £15, £30, £100 variances in open trades as part of the life cycle of that trade. Not small victories or losses within the trade but just and essential part of getting from A to B.
One way i do this is by making sure I record all of my results. By keeping a ‘scorecard’ it is always easier to focus on outcomes rather than the sometimes stressful journey!