Am excited, this technical analysis thing is just amazing; I should push the button and move into trading real money; I have been through this when I first started years ago just like many newbie’s. Be careful; do not get ambushed in this self-made trap.
If you’re a new inexperienced trader you might fall into the trap hidden in-between hindsight and reality. This is one of most overlooked elusive issues that new technical trader’s fall in, where after a losing streak they get frustrated and lose faith, even if they were using the appropriate money management techniques; the problem isn’t there; it’s hidden somewhere else, but you can’t see it at first sight; it’s in the transition from hindsight into reality, you just need to look deeper.
If you have been through this before, you should know what I mean right away, however if not; let me clarify more.
There are two sides of the problem that faces traders moving from back testing and demo trading into real trading; the psychological side and the technical side. In this post I will try to address the psychological part, before getting deeper into the technical side in the near future.
The key point is that dilemmas that face traders trading their own capital are usually overlooked when trading on an experimental account, traders tend to be in their comfort zone while trading fake money, where no real stress test applied to their decision making process. Less pressure means tendency to be less accurate or more approximate in evaluating and applying your trading rules; and tend not to base decisions on real facts, and that makes demo traders excited over the profits they will make and unconsciously biased to what their inner subconscious wants to see , neglecting how hard it is to make a decision on the appropriate action within their trading criteria under real market conditions, when their emotions take the lead driving themselves to the edge of the abyss.
The only way to face this issue is by being well prepared; to be well prepared is to:
Have a decisive trading methodology that can provide:
1) A clear entry criteria; based on certain rules or conditions that either you acquire by experience as a discretionary trader, or you set for yourself as a systematic trader.
2) The appropriate reaction to whatever markets throws; traders should have a clue of the possible scenarios that could face them after triggering the trade and how to deal with each scenario, either by closing your order; tightening your stop or even extending your targets, within the context of your previously known risk limits and appropriate money management techniques.
3) Reviewing trades, either to put your hands on the mistakes or flaws you made, try to optimize your methodology to handle any deficiencies or unexpected outcomes that affected your results.
4) Be realistic, precise, and rational when trading experimentally. For example, if you have a trade setup however not one hundred percent in line with your criteria, you should not take it, because if you do that would distort the evaluation process of your criteria by adding extra profit or loss.
5) Have a 360-view: you do that by always criticizing your methodology, by adding the phrase “what if”, i.e what if an opposite trading signal occurs when I am in trade.
Thanks for reading