On a recent trade, I was able to stay in the trade because I focused on price action.
However, my ability to stay in a trade and see it to fruition is not as nearly as reliable as I would like it to be. As I continue to work on this, I thought that I would at least jot down my thoughts that came about as a result of this trade.
Based on some of the comments and emails that I have received, this seems to be a common issue with other traders too and I hope these thoughts will help you too.
I dont' know about you, but usually when I bail out of a trade early, it is for the following reasons:
- I didn't have an exit plan going in
- I got nervous because because price became volatile
- I didn't backtest the strategy I am trading
Volatility is OK, IF…
When things get really volatile, sometimes it is best to bail out, especially if you have a profit on the table. This is a judgment call and should be exiting the trade because the volatility is happening on the time frame you are trading on and not because you get scared out on a significantly smaller time frame.
For example, if you are trading on the 1 hour chart, it probably isn't a good idea to base your exit on the 1 minute chart. The 1 minute chart will give you a heart attack if you are really trading based on signals on the 1 hour chart. If you don't believe me, try it.
Yes, I have been guilty of this many times too.
The other two causes are just simply sloppy trading. So what can I do to eliminate this from my trading?
- Backtest every trading system thoroughly and be comfortable with the risks
- Practice trading for at least an hour a day with Forex Tester 2
- Log my target price in my trading log
- Log the trading system that I am using on my trading log. Hopefully, that will remind me to only trade “approved” systems.
What do You Do?
What do you think? How to do you prevent yourself from bailing out early? Feel free to leave a comment below.