You’re in the midst of a perfect trade. You entered where you had planned, and you know when to exit. All you have to do now is wait for the price to reach 53 and sell. But it’s not moving fast enough. It seems to be hovering around 51 and 50. You’re starting to wonder whether or not it will ever move up. Panic sets in and you sell. About an hour later, the price hits 53 and it now seems obvious that you should have waited. Why didn’t you wait? Why did you impulsively sell? If you have trouble maintaining discipline, you’re not alone. It’s a common ailment.
It’s quite possible to have a trading plan all worked out but fail to follow it. When you plan out the trade-in in a logical state of mind, you have every intention of following it. You know exactly what you will do and when. At a critical moment of trading, however, something in your psyche goes awry. When you should be especially focused on sticking with your plan, you abandon it.
Why did you make such an impulsive decision that you may regret later? Some traders feel that everything happens so quickly that it is very little they can do. To some extent they are right. Your mind and body tend to react so instinctively that you can’t slow things down and stop yourself from making an impulsive decision. However, you can practice slowing down the processes that precede an impulsive move. You may not realize it, but every action you take is preceded by thoughts. You have an internal dialogue with yourself as you trade; it’s sort of like having a conversation with yourself. Sometimes it may happen so quickly that you are unaware of it, but it happens nonetheless.
What you say in this dialogue dictates how you feel and how you act. For example, if you tell yourself, “The price isn’t moving the way I want. It never does, and I’m a fool for believing that it will,” you will obviously feel uncertain, frustrated, and ready to close out your position. In contrast, if you think, “The price isn’t where I would like it to be, but it’s too soon to tell what will happen in the end. I need to relax, trust my trading plan and see if it comes to fruition,” you will be more likely to stay disciplined and stick with your plan. It may seem obvious that what you say to yourself will dictate how you feel and act, but many people underestimate the power of the internal dialogue.
They don’t realize that thoughts can pop into their head at the wrong moment and seriously impact what they do. If you are not keenly aware of what you are thinking as you trade, you are prone to fall victim to your unproductive thoughts. It is vital to monitor your thoughts, and when you engage in an unproductive dialogue, replace it with more productive dialogue. For example, when you find yourself thinking, “I know I should wait, but I’m not making any money and can’t stand feeling uneasy and uncertain,” you may want to refute this unproductive dialogue by thinking, “It’s not time to panic. I can wait if I try. I just need to wait and see what happens.”
It may seem simple to do in theory, but it’s hard to do in practice. It may be necessary to write down a script to read in times of uncertainty and uneasiness. By reading the script you can transform an impulsive state of mind into a disciplined state of mind. It’s easy to get thrown off balance by unexpected market events. As much as we need to go where the market takes us, we often want to force the markets to meet our expectations. It can be frustrating at times, but it is vital to take control of your feelings. By monitoring what you are thinking and feeling, and making sure that you stay calm and disciplined, you’ll be able to follow your trading plans and increase your odds of financial success.