A Professional's Guide to Not Losing Your Mind Or Your Profits

This is a very interesting look at the amateur traders mindset, and what you shouldn't do as opposed to what you should do to make money

written by DC Bonta:Forex Amnesia:A Professional's Guide to Not Losing Your Mind Or Your ProfitsToday, we're going to do something a little different.I'm just going to ramble.I'm just going to take you through a handful of scenarios and paint a picture for you about how critical it is for you to meticulously plan your trade… and then forget about it.I call it Forex amnesia.Ready? Then let's get started…The Planning PhaseThe most critical aspect of trading is planning the trade.This means looking at the charts, knowing where support and resistance levels are and targeting potential trades from those levels. Having a clear view of the market before you enter a trade is key.This eliminates emotion and allows you to stay focused even in times of extreme volatility (like during a news release) when everyone else is going crazy. You should be able to see a trade set up long before price gets to a point where you pull the trigger.The Trigger PhaseAnd once you pull the trigger and enter the market with your pre-determined profit target and stop loss your work is done!The Amnesia PhaseNow, your job is to totally and completely forget about what you just did. Erase it from your brain. This is a hard concept to grasp because I know you are still staring at the screen as every pip goes up and down…Now, you're getting nervous because it's not going quick enough in your favor…It almost hit your stop loss, maybe you should move that stop up just in case…Whew, it didn't hit your stop loss and now you're up a few pips…Now you're thinking, "I should just close this out at a small profit, I almost got stopped out before and it will never hit my profit target… I'm getting too greedy."This is what goes through the heads of LOSING traders.If you start changing the terms of the trade in the middle, you seriously hurt your long-term success. Let the trade complete itself and live with the results, good or bad.A Look Inside The Trades Of A Pro… And How He Uses Forex AmnesiaI'll give you an example of how this works with a pro trader that isn't even average. In fact, he stinks… he's only right 40% of the time.Here's the set up…* 10 trades* Stop loss at -10 pips* Profit target at +20 pips* $10,000 initial balance* Trading 1 standard lot per trade.And here are his results…* 4 winners x 20 pips x $10 per pip x 1 lot = +$800* 6 losers x 10 pips x $10 per pip x 1 lot = -$600The net gain from our pro trader (only being correct 40% of the time) with solid money management is +$200.He was able to do that because he did his homework and planned well, pulled the trigger on his 10 trades, and then forgot about them, letting them ride with the market.An Inside Look At An Amateur… And How He Micromanages Every PipHere's what an amateur might do with those same 10 trades…* Trade 1-He saw it was moving against him and moved the stop to -20, which was also hit* Trade 2-It moved in his favor and he closed it out +10, price eventually hit the original target of +20* Trade 3-It moved so fast, he couldn't close out early and it hit his target of +20* Trade 4-He was convinced he was right this time and moved the stop twice to -30, which was hit* Trade 5-It moved against him fast and stopped out at -10* Trade 6-It moved against him and he held steady at -10* Trade 7-An agonizing trade, it almost stopped him out, then went in his favor slowly. It made it to +13 and started stalling. Fear set in that is was going back down and he closed out +11* Trade 8-He's learning, stopped out -10* Trade 9-The best thing that could happen, he had a meeting and could not watch the computer. When he got back, the trade hit the profit target of +20* Trade 10-He's really feeling confident, so as price moves near his stop, he moves it again and loses -20Now, let's add up the damage. Mark this point very carefully… he had the same winning percentage of 40%. But look at what a difference it makes when you don't have Forex Amnesia…* 4 winners (61 pips total x $10 per pip x 1 lot) = +$610* 6 losers (100 pips total x $10 per pip x 1 lot) = -$1000The net gain from our amateur trader (still correct 40% of the time) with horrible money management is -$510