BLOG Forex Tips and Advices Forex Trading - Breaking the Rules and Dealing with It
Breaking the rules in forex trading is a frequent issue among traders. What are the techniques to overcome breaking the rules and follow the trading plan for better or worse? Are there any psychological tricks involved? Or, perhaps, a routine might help? What are the ways to keep your emotions from taking over?
Discipline
Discipline is probably the only way to overcome breaking the rules. In most cases, couple of really bad trades in forex is enough to teach you a lesson. Once you lose over $1,000 within a second and experience the pain of it, you will think twice whenever a similar situation/feeling/thought/trade crosses your way.
Punishment
Teach yourself to behave! The best way is to punish yourself whenever you ignore your forex trading rules. For example, whenever you break a rule, you are no longer allowed to make any trades for the rest of the week (or even longer!).
Punishment can be related to something rather than forex trading. If you break your trading rules, you can no longer do something you have planned and were looking forward to. For example, you have planned a poker night with the guys, but during the week you broke the rules. This means, no poker night for you!
Dealing with consequences from a bad behavior will teach you not to break the rules. Maybe not right away, but after 2-3 times of missing out on golf, movies, beer and friends, you will automatically abbey the rules. After all, human beings have a soaring desire for pleasure and equally substantial craving for pain avoidance.
Time off is helpful to realize your mistakes and reflect on all the bad moves you made in the past. After a week or so, you come back to forex trading re-focused and recharged with positive attitude and better discipline.
Read the Reasons Out Loud
You have to understand the reasons behind placing each trade. Reading the trade back to yourself before placing it is a good technique to check whether the trade is truly justified. Read the checklist of why you want to place the trade, what is the plan, what are the expectations, stop/loss, risk/reward ratio etc. out loud. This will save you from bungee jumping into a trade without checking the ropes!
Analyze the Emotions
If you are breaking the trading rules, you are not confident in your forex strategy. And if so, you have to dig deeper for answers. Why are you breaking the rules in the first place? Is it eagerness? Fear of missing out? Greed? Overtrading? Revenge trading? Desperation? Inability to stand still while forex market climbs 150 ticks in couple of seconds?
Don’t Move the Stop Loss
Once you have it set, don’t touch it! If you play around with the stop/loss, you are relying on pure luck. The moment you start hoping for a trade to go our way, it most likely has gone wrong and you should close it right away. Do not fall for the temptation to wait it out and move a stop a few ticks! NO!
Trading on luck is called gambling and is a straight call for disaster. Hope and Luck are not a strategy. Find a point to exit the position and get out as quickly as possible. Don’t worry about missing out - forex market will not run away from you. There will be tones of other opportunities on the way.
Write Them Down!
When you have broken the rule and there is no way back, make sure to understand the full reason behind this (including stop, potential loss vs reward, results etc) and write it down in your forex trading journal. Writing down your wrong doings is a great technique to reflect on your mistakes later on. Next time when you feel like breaking the rules, your journal will stare back at you with the possible outcomes!
