Most professional athletes can tell you when they are “in the zone”—that special place that only they know about but it leads to maximum performance. Every one of those athletes will tell you that they got that way by strict discipline and practice. One of the things that they practiced constantly was the basics as they understand them to be.
A golfer has “his swing”. A baseball player knows “his pitch”. A racing car driver has “his line” These professionals got there by following the bedrock basics all the time.
In trading, the bedrock basics include trading a size that works for you. Just because you can trade a 50 lot of something doesn’t mean it is a good idea for you to do that. It is a mistake to think that whatever trading size you choose to work with day-to-day will automatically “fit” in your head. In fact, most traders will tell you the single most embarrassing blow-out they have had is the one that came from varying their trade size when doing well. In other words, they were pulling money out of the markets regularly and decided to increase their trade size just because they could; and subsequently the resulting new levels of equity gains or losses threw off their equilibrium. It made them see things differently and they lost enough of their edge to cause themselves losses.
To help put this in perspective, look back to a time in your life when you were trying something new for the first time. Did you ever have the feeling that someone else “made it look so easy”? Imagine your son or daughter being exposed to baseball or ballet for the first time. You and the instructor can plainly see that those kids have what it takes to excel at these sports. But if you push them too fast they will get discouraged because they “can’t do it”. Of course they can do it, but they don’t see that yet and they lack the confidence that doing the basics well can offer them. Imagine a 10 year old Hank Aaron with no experience staring down Major League Pitcher Al Downing for the first time.
In my early life, before I was a trader, I had the privilege of learning how to drive an open-wheel single-seater race car. The education process started with a lot of classroom theory followed by getting in the car and just doing it. I had to start at small “revs” so the car didn’t get ahead of me; in other words drive slow at first. After every few laps we had some critique by the instructor. While I was learning I was never allowed to exceed a certain amount of revs. Some guys in my class were never given the go ahead for higher revs; they flunked out. When my turn came I was given the green light to “see what the car could do” Because I had gotten really good at doing the basics of cornering I had absolute confidence and respect for my developing talent. I came within a few seconds of a course record on my third round of “full lapping” at full revs. I had no idea I had done that well; I just felt “in the zone” When my instructor offered me a chance to move up to a bigger horsepower car I had absolutely no worries. 20 minutes later I was so scared I thought I would kill myself. I was making serious mistakes, my speed was dropping and I was “off my line” In retrospect, and my instructor told me this, he had moved me up too fast. Although I was getting good at lapping with a lower performing car, I didn’t have the real bedrock knowledge yet. I needed more time and experience. When I got that time and experience I was a real driver—but that took two more years. I honestly believe that if I would have stayed with the bigger car initially I would have had a huge accident and maybe gotten seriously hurt.
forex mistake - varying the size of your trading
Trading is a lot like that learning curve. What makes you a success at an early stage is not necessarily going to be what keeps you successful as the game goes on. As you get better and better it is tempting to increase your trade size. When you do, it is not uncommon for the new set of parameters and risk/reward numbers to “mess with your head” so much it leads to losses. Things were going really well but now you are losing ground.
Don’t be the trader that thinks he can do it all—all the time. Don’t vary your trade size easily. Stick with what you know is working and plan on increasing your trade size for very good reasons and at a certain level of success. Don’t do it too fast or you will find yourself holding losses for no real reason you can figure out easily.
HOW TO MAKE THIS MISTAKE WORSE: Focus on the money being made instead of the discipline required to get there, make your trade size as big as possible for your account size, ignore money management rules, don’t run a stop-loss order, trade larger when losing.
SOLUTION: Make the commitment to trade only a certain size until you have successfully doubled your account balance. Don’t increase size until you have done at least 100 trades with your system. No matter how well you are doing don’t increase your size for a full calendar year.
Source : Ebook from www.forexbrotherhood.com
Related posts:
- Forex Mistake #1 – Paper Trading Too Long Paper trading is hypothetical trading. If you have never traded anything before, you will probably do some paper trading. The benefit of paper trading is that it will help the new trader become acquainted with the basics of interfacing with...
- Forex Mistake #3 – TRADING TOO LARGE FOR YOUR ACCOUNT The fastest way to go broke is to bet it all—all the time. Most traders don’t learn this lesson until they have had at least one blow-out; by that I mean they have lost all their equity quickly and have...
- Forex Mistake #2 – NOT HAVING A TRADING PLAN Suppose you called your 401K manager this afternoon. Suppose you asked him “What is your plan for the next six months?” Suppose he told you “Oh—whatever. I just try to get on the right side and if I don’t I...
- Forex Mistake #9 – NOT KEEPING RECORDS OF YOUR TRADING hen I teach my Psychology of Trading class every quarter it still amazes me how many of my attendees cannot provide me written documentation of their trading results. That’s like running a business everyday with only one piece of information;...
- Forex Mistake # 10 – TRADING FOREX WITHOUT A STOP-LOSS ORDER Please keep note of this mistake as this is the essential mistake trader usually made. Why do you think they are called stop-loss orders? Because that is the point you want to stop losing. There is no way to adequately...
No Responses to “Forex Mistake #4 – VARYING THE SIZE OF YOUR TRADES”