Trading Uncategorized

How Indecision Can Eat Away Your Trading Profits

Most of us traders have experienced this: Your confidence is extremely high and you are very profitable when trading the demo account. However, all of that disappears once you go live. Fear of losing money can negatively affect how you trade. Suddenly, you commit all the errors that you otherwise would not commit while trading with paper money.

How Indecision Can Kill Your Trading Career

So you have been watching that stock for a while and notice it has been trending up strongly since the start of the trading day, signaling the bull is controlling the market. The move was so fast from the beginning that you didn’t have a chance to jump on the bandwagon. Then, the stock stops climbing up and starts moving down, but slowly and on lighter volume. You know this may be a pullback and if you want to join in, now is your chance.

However, you hesitate to press that buy button as the price fluctuates up and down. Every time it moves a little bit lower, you ask yourself if the stock is actually beginning a downtrend instead of having a minor correction.

While you are still considering the alternatives, the stock makes a bold move and jumps up from the low. It keeps moving up, on higher volume. You sit there, freezing. The stock keeps moving higher, without you. Now it’s late to enter the trade. Congratulations. Your indecision has just ruined your chance of having a great trade.

Have many times had this happened to you when you first got started trading with real money? I bet many times. Because that’s exactly what happened to me.

Even though indecision may seem harmless, at least it didn’t result in a loss, it’s actually very harmful because it causes you to miss potentially homerun trades. Of course, you may argue that you just as well avoid potential losing trades as well. To test this theory, let’s keep a journal of the trades you decided not to take or miss. You need to jot down the potential profit (or loss) that missed trade could have generated. Once you have enough data, you can conclude whether you should do the opposite of your hesitation next time or not.

How to Be a Confident Trader

First of all, most new traders suffer from indecision, so do traders who have just experienced big losses. Your confidence level will rise as you gain more experience. However, this doesn’t mean you should let indecision affect how you make trading decisions. To be able to do this, you need to create a trading plan and stick to that plan. To be able to do that, you need discipline and lots of practice. No one can become a disciplined trader overnight. It’s estimated that you need an average of 10,000 hours of practice in any field to become an expert.

Before entering any trade, calculate your risk/reward ratio and your stop loss level. If the trade satisfied your risk/reward requirements, go ahead and push the button. If not, it’s ok to pass it and wait for a better opportunity.

Hesitation and indecision are common among new traders. However, with the right approach, you can speed up the learning curve and move your trading journey to the next level.