A very common problem among traders is Revenge trading.  It's when a trader continues to trade although he knows he's not in the right frame of mind, or doesn't have the system capable of winning.  Basically, you're losing your ass but continue to trade anyway.  

This almost always works like the snowball effect.  First, the trader loses a trade or two and starts thinking (consciously or sub consciously) that he is down and needs to make the money back.  Next, he starts to take more and more trades that often don't fit his trading system's trade criteria.  The more he trades, the more frustrated he gets.  Before he knows it, he's lost 8 out of 8 trades and can't find a reasons why he took the trades in the first place!  

I've been here and I know how frustrating it can be.  In the past, there have been times where I was up 4 or 5 days in a row, then gave back half the weeks profits on a "revenge day".  It's not good when your equity curve starts to look like the recent stock market crash!  Since then, I've developed a lot more discipline and self-control.  And guess what?  My trading has gotten incredibly better.  

The only way to get past this is by continuously focusing and working on your discipline as a trader.  It's not a sexy answer with a quick fix, but definitely takes time and effort.  The rewards are way worth the effort.  It's such a great feeling to trade effortlessly- to be in the flow with the market and executing like a pro!  To get there, you only need two simple little things:

1.  A solid, proven trading system or plan

2. Confidence in your system that you have a greater probability of winning than losing, and proper risk management

If you know you're trading a system that has an "edge" over the market and you know how to properly manage your trades (money), then there's no stopping you… uh, unless you don't follow your rules.  Remember, there is no holy-grail to trading other than the 6 inches between your ears.  Stop focusing on the latest and greatest indicator and start paying attention to your thought patterns and trading plan.  

Filed under: Trading by Chris Dunn