Even though currency trading is not gambling, the forex trader still has something of the gambler in him, since there is always the element of chance, no matter how slight, in the trades he makes.
However, the smart trader always has a trading plan that he takes with him when he goes to trade.
This trading plan describes what strategy he will use to make his trades as well as how much he will risk per trade.
The problem is, as with gambling, that in the heat of trading, emotion can take over and the trader deviates from the plan.
He tells himself, just this once I will make an exception and follow my instincts rather than the plan.
Unfortunately, one exception leads to another and before long the trader has abandoned his plan altogether and is no longer trading with discipline.
In addition, fear can take over and the trader might exit a position prematurely, before he has earned the maximum profit from the price fluctuation.
Or he might become greedy and keep a position open long after he should already have closed it, increasing the risk that the trade will go against him and he will lose money.
Even worse, like a gambler he might start chasing a losing trade, continuing to hold on to it in the hope that the trend might suddenly turn in his favor and he would recover his losses.
To make it easier for the currency trader to stick to his plan, he should start to keep a trading journal or log.
The journal will include the details of his strategy, as well as of the trades he makes. He should record every trade faithfully in the journal, including when the trade was made, how much was invested and the outcome of the trade as well as the trading signal that caused the initiation of the trade.
For example, when the signal causes the trader to open a position, he might record that he entered a trade on the EUR/USD currency pair and shorted it at the 1.3210 price level during a bearish crossover.
The position was closed when the crossover became bullish and profit was taken. This will allow you to look over your trades later to see which ones worked and why as well as what went wrong with the other trades and what you could learn from them.
But the real value of a trading journal is to help the trader develop self-discipline.
The trader can record trades that were made which did not follow his trading plan to see what happened.
When he sees in black and white the consequences of not following his trading plan, he will eventually learn the importance of adhering to it – or else!
Content source: www.admiralmarkets.ph , A Philippines Forex broker.
