Thursday February 2, 2012 07:11
Forex Trading: Breaking Emotional Models? Part 2
Posted by Pro Trader as Intro to Forex
So let us consider an example of this image technique.
Lou is the active trader in the market, with trade experience hardly more than a year. He has made the majority of errors as the beginner and has learned from them how carefully to plan the transactions, to limit the losses and to adjust the size of positions under variability of the market. He basically trades ES – and NQ-mini short-term methods of trade on breaks, trying to catch 1-4 fluctuations in day depending on a variability and trend condition. Its inputs are based on double values of oscillators RSI, using short-term (intra-day) and long-term parameters.
Though, in general, it was successful, he has noticed that it rather badly performed transactions in trend days. He considers that he too long fluctuates at an input in the market and then too quickly leaves transactions as soon as they become favorable. As a result of it, he takes only small slices from movements which should provide to it the profit most part.
Check of problem shows that they begin with gap at opening in which the price sharply moves upwards or downwards concerning closing price of previous day. This gap immediately causes negative reflections from Lou who for the most part of time reflects feelings about absence of an obvious maximum or a minimum part in the market. During this period of regret, he actively doesn’t follow price action or doesn’t plan entering the market. Instead, he hopes for recoil so that he could have the best point of an input. The price, of course, doesn’t come back according to its desire and moves further away from opening, now giving a signal of resale or rebuy of oscillator. Lou uses it as the further justification to be kept from an input in the market, daring to drop a good share of a morning trend.
This problem seems unusually nonprofessional for the skilled trader; therefore we research complete accomplishment of trade of Lou. Confidently enough, we find that his losses have occurred when opening gap have been developed. These false breaks have forced him to purchase on early maxima sale on minima, to begin the day with serious losses and have shaken its confidence. It allows us to see, in what the problem, apparently, consists – refusal is included early into the market in trend day actually is the response developed to minimize possibility of losses. Unfortunately, it also minimizes profit earning possibility!
Our therapy of an exposure for Lou begins with training to skills. We taught Lou to methods for behavioural self-checking which includes slow, rhythmical deep breath and comforting images and we force him to practice it while he doesn’t become qualified in maintenance of the self-control. Besides, we also want that Lou has studied some vital trading skills. It needs a kit of rules to distinguish potential trend days from when there can be a turn and study rules for fast recognition of turns as soon as they occur. For example, he can find that movements from gapes at opening which remain intact by certain o’clock, more possibly, will proceed during the day, than what are partially filled.
People who took the decision to participate in forex trading should start from learning the basics of this market to make sure you do not have problems with this industry.