Emotional trader

This topic has been addressed more times than any issue with regards to trading forex.

There's a very good reason for this:

TRADERS JUST DON'T GET IT!!!

Emotions will kill even the most technically or fundamentally astute traders if they are not kept in check.
To put things in perspective; if I went to the gym concerned about not being able to lift as much as I did last week, or worried that some mindless Ape was going to try and kick me off his favourite machine just because I glanced at his 20 inch bicep and wondered how much "juice" he needed for that, I would be a wreck.
When you are battling the markets and keep having your mental metal challenged by the zig zags of a trading range, you need to have preset escape routes so your finances and sanity don't go into a nose dive.

Ok, so what does all this mean?

I am not even going to address this issue referring to timeframes lower than the daily/weekly chart. If you're a 5-15 min scalper, I'm afraid you are on your own.

3 key things:

A) Never over leverage a position:
Sounds obvious huh...

But when you are trading and thinking about how much percentage you want to gain this week/month, you are setting yourself up to make the most common and fatal mistake a trader can make. Your mind crunches some numbers, spits out how much $ you need to make to reach your goal and come hell or high water, you are going to achieve it right?!
WRONG!!!
The market doesn't care what your goals are (most traders fail miserably by the way - FACT!). The market will do whatever it does and the most crucial thing we can do is control our level of exposure (risk). What I mean is, If you think there is only 300 pips in this swing trade, but you want to make 15% this month, you may have to up your leverage to make this percentage. However, if this puts you at risk of losing too much money when things go wrong, you are likely to become irrational.
Price starts moving against you and before you know it, you are already 4-5% underwater (floating loss). You start to panic, it goes against you a bit more, so you pull the rip cord and exit the trade.
Later that evening, price then returns to its original trend, moves past your entry point into what would have been a nice profitable position, and you find yourself on the helpline seeking charity from someone so you don't neck yourself. 

With this in mind, we then need to consider our stoploss.

B) Always use a stoploss:
Whether an actual one placed on your platform, or a mental one where a daily/weekly close above/below a certain level, tells you your analysis was incorrect and it's time to bail before your plane disintegrates on impact along with your loot. using a defined stop loss (I do), allows me to accurately determine how much leverage I can use and stay within my own % risk parameter.

Alright,  but how do we make money?

C) Have clear objectives with regards to take profit levels and make sure they are larger than your stop loss.
This allows you to be wrong 50% of the time and still make money. (By the way, if you are wrong 50% of the time, you have lots of work to do).
When I first started trading, I was in and out of most of my trades within 3-4 hours (sometimes 1 hour) as I would get nervous every time the market retraced and reduced my equity. It was ok, problem was, my profits levels were (at best) as big as my stop loss. Screen time was also a killer and sucked the life out of my normally steady nerves.
Now, I watch the weekly charts and look for clear signs of a reversal starting. I then look for technical reasons why this might be happening. If I find a good excuse for the market to be doing what it is doing, this limits the random factor where false signals are given as a form of entrapment. Once I'm happy that price action is confirming the signal, I enter my trade, place my SL above the highest recent market peak and set my targets below.

Using this method, If I get taken out and I lose 3% of my account, so be it.

It's a cost of doing business.

I'm confident of making it back (and then some) with my next swing trade.

In summary, don't bet the farm, always know how much you are risking and set your target levels.

Weekly charts are awesome, cuts the emotional baggage and makes trading a whole lot easier.

ForexFitness...