Getting Past the Greed Trap for Beginner Traders
Let’s face it, the heart of any trade is “reward”, and in most market including the forex market, we’ve all known this reward as the remarkable realization of “profit”. Making profit, more profits and eventually creating (ambitious) tons of dollars at a shorter period of time. Well that’s the very reason anybody dives into the risky market anyway. But then again, everything has a relative opposite. In FX, we have “profit” as the good side, while we have “loss” as the bad side, which we could only hope we never grapple with (but that’s almost impossible).
It’s a tug of war. And even when we traders, old and new, have already come up with our ingenious trading styles and strategies, odds may not always be in our favor, for the rope may land at any end. Hence the goal to “at least” finish strong; close our positions with more wins and a few losses; a net profit before calling it a day.
Then the cycle goes on. Let’s put ourselves in the shoes of an amateur trader. We refer to our regular routines in trading the market and feel more comfortable with the volatility. We get more accustomed to the shocks while we treat every win a “eureka” moment. Fast forward, we get used to more gains and suddenly… we’re greedy. Yes, greedy. Because we know there’s so much to gain from the market it would be a huge waste to miss the opportunity. Ever had this line in your head? “I will make the most out of this market and retire a millionaire.”, and so you did or so you will.
But there are at least three brief and familiar horror stories we (as amateur traders) might have already chanced upon or be on the way to that just turns the latter statement sour; shutting off the greed meter back to zero.
There’s the beginner’s luck phenomena where we launch smoothly with profits, and eventually burn an entire account with shallow-founded overconfidence and lack of rational technique. Then there’s our learning curve where we take the one-step-at-a-time strategy, but on a hype just irrationally make reentries on a trade and now hold by a thread with a floating loss larger than our hard-earned profits (plus a portion of our capital, ouch!). And there’s our desperate history-repeats-itself-to-my-favor kind of trading where we stick to our technical theories hoping history does repeat itself. We consider only gains and we hardly (or not at all) cut losses, because losses are for the weak.
These scenarios elicit either of the two usual responses from amateur traders; either the “I will get back those losses whatever it takes” or the trauma-driven, “I’m never trading again”.
The Poison and the antidote
All these scenes could have also scraped off trading accounts of many, and the common culprit? Greed. That drug that turns to poison and cuts down the number of beginner traders after losing their initial forex investment.
So again, as an amateur trader, we ask ourselves, what could have been the antidote? How could we possibly get past the greed trap?
Well, you might expect something more technical, but it’s actually simpler than anything too technical. In fact, it has something more to do with emotional acumen than IQ. We’re talking about “discipline”. Yes, discipline is abstract. It’s an attitude we build ourselves, and unfortunately, an attitude most often called for after worst experiences have already happened. But that’s exactly the goal, that we don’t let the worst experiences happen. So how do we do that? How do we get past the greed trap? Here. We simply put the abstract thought into something physical, a material output you may find trivial, but actually works magic. And that is your handy-dandy “trading journal”.
The Trading Journal and your Trading Success
A piece of advice, becoming a successful forex trader is not an overnight phenomenon. It takes a comprehensive learning process that requires a critical level of planning and practice. And one of the best tools to guide a trader through this learning process is with the help of a trading journal. The trading journal is a record of all trades you take as a trader, more like a diary for your forex journey. It tracks a trader’s progress and helps ensure that one religiously follows a trading plan.
Entries in a trading journal usually describe the currency pairs traded, the position (short or long), the position size and the result of the trade once closed (profit or loss). Traders can customize their journals and be creative by including more useful information that fits their needs, such as the highs and lows during the trade, the period held and even his or her emotional state at the time.
Given the definition of a trading journal, we can certainly come up with a substantial list of benefits from keeping one.
First and the most evident, the journal will provide a historical record; not only of your trades but also of your trading performance. It becomes your personal database, which will give you the opportunity to determine how often you traded, how successful each trade was, which currency pairs worked better for you and even what time frames yielded the best profits. Depending how systematic you want to be, you will be able to grasp a great deal of information from your recording efforts.
Second, the journal could also provide a clear picture for your future trading plans. This feature helps you consider each trade more carefully in terms of the entry and exit parameters, how much exposure you can take for each trade and how much profit you can target. In other words, it helps you develop a strategy, by turning your thoughts into actual numbers, while learning which works and which doesn’t.
Lastly, with the records and methods you develop overtime, you allow yourself to improve personally as trader. This happens when you opt to change certain habits from destructive to constructive when you trade in order to come up with more successful strategies. Along the way, you will develop a level of confidence when your profits won’t feel like luck and your losses will be more calculated and rational.
With all these benefits, we could all be convinced that an amateur trader does need help from a trading journal to get past that greed trap and take off poison-free.
So here are a few websites you can check out for trading journal references. Though I will be posting a separate blog for a few reviews on each website, you can check and try them out yourselves of course.
1. My FX Book - https://www.myfxbook.com/
2. Trading Diary Pro - https://www.tradingdiarypro.com/
3. Trade Bench - https://tradebench.com/
4. Edgewonk from Tradeciety - http://tradingconsistently.com/
I have my personal trading kit with a journal however, and perhaps you can come out with your own too. But this could be a pretty good start for you to discover what really suits your needs as a trader (when it comes to recording trading performance). Well, I can share my thoughts on how I created mine in the future, but for now this will do. Good luck on getting past the greed trap, and may the pips be with you!
