Afraid of impulse trading? You should be

Last week we talked about how being disciplined is the only way to conquer the market.

Not only does trading discipline keep you from doing stupid (i.e. greedy, angry, reckless) things, being consistent with your strategies also teaches you a lot about how the market works. And that’s how you build up the confidence you need to make a business out of trading.

So, discipline, good. Gut instincts, bad.

Not only does trading discipline keep you from doing stupid (i.e. greedy, angry, reckless) things, being consistent with your strategies also teaches you a lot about how the market works

But there are times when your gut just won’t shut up. Actually, it happens a lot more often than you think, even to traders who seem like they have it all together. That’s because what we feel is really hard to block out.

What’s an impulse trade?

An impulse trade can happen so fast you don’t even see it coming. Something triggers your trading finger and you press trade before you have the chance to think twice about it. It just feels right.

Now you’re trading on impulse.

As long as the market is moving your way, and you see profits, you’re Rafael Nadal at the US Open. But, even if it doesn’t happen right away, eventually you’re going to take a nasty hit if you’re impulse trading.

Before you realize it, your grand slam dreams are gone and your Nadal’s ball boy. But that’s not even the scary part.

Here’s the scary part.

What actually happens when you impulse trade?

A few things can happen when you let your stomach do the talking and it doesn’t work out. Probably, you’ll experience some anger. (What the hell did I just do?)

Then, once you stop kicking yourself, you may feel a little fear. (What if I keep losing? Is my career over?)  One thing you’ll definitely be feeling is loss, as in all that money that’s no longer in your account.

At the very worst—because, let’s face it, it can always get worse—you’ll become “married” to your trade, which means you’ll keep riding that trade out until you make it profitable. Because you can, right?  Nope, you probably can’t, and you’ve just lost a whole lot more money in the meantime.

What can I do to stop making impulse trades?

You’ve already taken the first step. You know what an impulse is, so next time you feel one coming on, you can identify it and own it. If you do go through with an impulse trade, treat it like any other trade, i.e. use the risk management strategy set out in your trading plan. If you normally stop out with a 2% loss, use the same percentage to trigger your impulse trade stop loss.

Another way of cutting down on impulse trades is to pretend you’ve got to explain all your trades to your boss, a big guy who maybe smokes real Cohiba cigars and will not be very pleased to hear that you’ve been losing his money on whims. Maybe that will help you start caring more about flushing your own money down the toilet. But the best way to get over your impulse trading habit isn’t play acting or even writing a sticky note with your trade stop loss figures on it.

If you really want to conquer your gut, here’s what we do. We remove our itchy fingers from the equation completely with really good algotrading software. With smart algos, you won’t ever be in a position to trade on impulse. You won’t feel the pressure, the anger or the fear, because your algos will feel it all for you.

You: Seriously? How does that work?

Us: Come back next week, my friend, and we’ll tell you all about it.

Next week: How Tekton algotrading software can help you conquer your impulses and get discipline.

Related Articles

What’s missing from most strategies?

Have you ever noticed the one thing about all the information you find out there these days about trading, you know – the various setups, strategies and systems.

Well, they all seem to put a lot of focus on the actual ‘Entry’ and nobody seems to talk must about the other part of that equation – Which is the ‘Exit’ right?

How much discipline do I need to be a successful trader?

No one ever said that conquering the markets was easy. But being successful definitely isn’t impossible. It just takes a lot of hard work and even more discipline, no matter how much natural ability you have.

The problem is, to practice your craft, you’ve got to actually get in there and play the market. And that means exposing yourself to a whole bunch of psychological obstacles you’ll need to be able to deal with effectively—pressure, fear, anger, uncertainty, etc.—if you want to come out on top.

Want real discipline? Start algotrading.

It’s true. The best traders stay disciplined by sticking to their trading plans.

Trading by plan lets you know when to get into a trade and when to get out. (It isn’t an angel’s voice whispering in your ear every time you’re about to get greedy, friends. It’s the plan.)

If you’ve got a plan, it’s easier to stay objective and avoid revenge trading if things go south, as they will from time to time. And you’ll keep your mind focused and decluttered. No emotion allowed when you’re trading, remember? (Unless you’ve just won a trade and it’s party time.)
So, discipline, good. Gut instincts, bad.
The problem is, to practice your craft, you’ve got to actually get in there and play the market. And that means exposing yourself to a whole bunch of psychological obstacles you’ll need to be able to deal with effectively—pressure, fear, anger, uncertainty, etc.—if you want to come out on top.

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