In order to trade the forex market as effectively as possible you need to keep your mind focused on what’s happening right now, if you begin thinking about past mistakes you have made whether it be trades which have lost you money or trades you have closed out prematurely then your ability to make good decision will be affected.
Today I want to look at how thinking about past mistakes affects your trading. Lots of traders suffer from this problem and I think the best way to overcome it is by understanding why it occurs and the effects it has on your trading.
Why Do You Think About The Past Mistakes ?
Traders typically tend to think about past mistakes they have made when there looking to take a trade or when they are already entered into a trade. If they begin thinking about past mistakes before they take a trade it may cause them to hold off placing the trade because they may remember a time when a similar trade they took didn’t work out profitably for them.
When traders are currently holding an open trade they might think back to a time before when they had a trade open and failed to close it before the market turned against them and they ended up coming out with a much smaller profit than what they initially had.
This could cause the trader to close the trade because they believe the same is going to happen again.
If the trader decides to not take a trade or close an open trade based on something which has happened to him in the past, it has the potential to cause him to make more mistakes.
Lets say a trader closed an open trade which was in profit because there was a time in the past when he held an open trade and failed to close it before the market turned and began moving against his position, causing him to come out with less profit than what he would have had if he had closed the trade at the correct moment.
If the trader closes his trade because doesn’t want the same situation to repeat itself again and then afterwards see’s the market continue moving in the direction to which the trade he just closed was placed, he will class it as another mistake because he closed his trade too early and came out with less profit than what he could have had if he just left the trade open.
This means in the future, there might be time when he has a trade open and he decides to let it run because of the mistake he made in the past where he closed the trade too early and came out with a much smaller amount of profit than what he should have had.
So now the trade he is letting run starts moving against him, his profit starts decreasing and he decide to close the trade, thus making the same the mistake he made in the first place even though he was trying not to make the same mistake again by letting his trade run instead of closing it early.
You see it’s almost like a paradox, by trying to correct the first mistake, he actually ends up making the same mistake. This is the cycle traders are constantly in, they make a mistake, then try to correct the mistake by doing things differently and actually end up making more mistakes.
How To Stop Thinking About Past Mistakes
Like all issues related to trading psychology, stopping yourself thinking about past mistakes is much easier said than done.
It requires you to accept that you will never reach perfection in your trading and every trading decision you make was the best decision you could have taken with the information you had available at that time. It much easier to stop making mistakes if you understand the market better, of course this in-iteslf is no easy task, but if you have a better idea of what is going on in the market then you will be able to make better trading decisions because you will be more adept at knowing what the most likely path is for the future market direction.
Mistakes you have made in the past have no meaning for the current situation, it doesn’t matter if you decide to close a trade early on a previous trade, the trade you’re in now is completely different, the setup is probably different, the charts are different, the market price is different, all of these differences mean the trade you’re currently in or thinking about taking, is entirely independent from any other trade taken in the past.
There isn’t any point in you taking some course of action which prevents a mistake you made in the past from occurring again because the mistake was only relevant to the trade which it was made on.
You can’t say “on each trade I place from now on I’m going to take profits as soon as I see signs of the market reversing” all because you had an experience in the past where you were holding a trade and the price moved against you which eventually ended up with you coming out of the trade with a smaller profit than what you could have had if you closed the trade at the right time, because all of the future trades you will take are not the same as the previous trades you have made in the past.
Traders believe there is some kind of connection between their past trades because of the trading strategy they use.
If a supply and demand trader takes a trade because of a supply zone being hit, he is going to think any trade he takes in the future due to a supply zone being hit is the same as any previous supply zone trade he has taken. He assumes this to be the case because the reason the for the market falling when it reaches a supply zone is always the same, therefore he see’s all of the trades he takes based on a supply zone are the same as each other, even though everything in the market is different with the appearance of each zone.
Thinking about past mistakes is definitely not an easy problem to fix, I understand most of the people who read this article will still probably continue to think about their past mistakes even though they know it’s not productive for their trading results. The big problem with trading psychology in general is that no matter how much information you give people on their mindset issues at the end of the day their problems can only be fixed by themselves.
I’ve lost count of all the books I’ve read on trading psychology and how by the end of the books I would always say to myself “from now on I’m not going to make any of these psychology related mistakes again” under the impression that by reading the book and understanding the mistakes I was making was going to automatically fix the problem I had. Unfortunately when it came to me placing trades after reading the book I would find myself making the same mistakes all over again and the realization set in that fixing psychology related issues is not solvable by just reading a book or watching a video.
If you really want to fix any issue relating to trading psychology then your best bet is to learn more about the market. The more you learn about how the market works the better prepared you’ll be to understand why a trade you take will have a good chance of working out successfully or why you should let a trade you have open run for a longer duration of time.
Thanks for reading, please leave any questions in the comment section below.