I write a lot about being disciplined and controlling impulsive behavior. The reason being that it the single most important factor in becoming a profitable trader. Winning swing traders have learned to control their impulses. They can follow swing trading entry and exit signals effortlessly. They have total self-control.
Rather than give into their urges, they are able to stick with their swing trading strategy knowing there will be days or maybe weeks where they will lose money but that over time they will be profitable and also more importantly they will never suffer the account killing big loss.
Depending on your personality type you may have difficulty controlling your impulsive trades. Especially if you have a gambling nature. But even if you are disciplined enough to be able to control your impulsive nature there is a lot that can be done to ensure you follow your strategy.
The most common way swing traders act impulsively is by abandoning their strategy.
Once you decide to follow a specific swing trading strategy it is absolutely vital that you follow it. But this can be difficult to do. Even though I have years of experience I still have the urge to take impulsive trades even though they don’t fit any of my strategies. I find myself needing to “do something”.
Years of experience have not dulled my emotions but it has taught me to stick with my strategies. Like everyone else, I had to learn the hard way. I entered trades with the best of intentions and with great conviction. I also lost money almost every time because I wasn’t following a strategy, it just “felt” like to right thing to do.
It will seem easy when you first start following a strategy but while in the middle of a bullish or bearish run in prices it can be hard to stay with it.
At any given point, you may look at the market action and think, “There’s no way this trade can work.”
If you are an experienced trader you will have the discipline to stay with the strategy. Novice traders will in contrast abandon their plan prematurely and regret it later when they find that if they been able to stick with it a little longer they would have made a larger profit, or avoided a large loss.
It’s hard to do, but novice traders must fight the impulse to exit a position prematurely. The big money is made by milking every last dollar possible from a winning trade.
The Big Picture
Your first step to gaining control of impulse trading is to identify the reasons you want to control them, in other words what is the downside to abandoning your swing trading strategy.
The obvious reason of course, is the swing traders desire to maximize profits. The profits on winning trades must compensate for losses on losing trades.
By following a well-defined strategy it will usually insure profitability. You will have an easier time sticking with your plan if you frequently remind yourself that in the big picture, following the strategy is the key to profitability.
You may want to stick a note on your monitor and look at it before placing a trade. Ask yourself it the trade is impulsive or does it meet one of your defined strategies.
The more discipline and self-control you are the more profitability you’ll achieve in the long run.
Fear And Greed
There will be times that impulses are hard to control because of your emotional state.
Not following a strategy may give you a good feeling for a day or two, but you will have joined the “herd,” of millions of investors. And overall, the herd loses money.
By monitoring your emotions you can identify how they lead to impulsive trades. Think about your state of mind when entering a trade. This is where a trading journal can really help you. I encourage you to keep one.
It will take time to control your emotions and impulsive trades. Don’t give up. Staying with a strategy through a difficult period, and then realizing you have not only beaten the market, but also your own emotions, is very rewarding and profitable.
Make it easy on your self and follow a professional trader who has been thru the ups and downs of trading and can help guide you you becoming a profitable trader.
Here are the two I use:
Regardless of which Stock Picking Service you use or if even if you choose to go it alone, please download my free eBook: “The 7 Habits of Millionaire Traders”
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– Robert Walsh