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Trading Psychology Lesson – Impulse Trading

  • In this article we’re going to investigate the concept of good and bad trades.
  • We’ll note that good trades are a result of making ‘good trading decisions’ but alas may still have ‘bad outcomes’.
  • Conversely, bad trades are a result of making ‘bad decisions’ and on occasion may actually result in ‘good outcomes’.
  • The trader’s best weapon in breaking the mould of most novices who lose wads of cash in the market is to focus only on making good trades, and worrying less about good or bad outcomes.

 

In our Workshops we attempt to deliver students strategies which help identify the best trades to suit particular and personal trading specifications. We have a number of trading strategies which can be used to reap rewards from the stock market, with each strategy using a particular structure or ‘setup’ to formulate a smart trade. Most traders however don’t have such a structure, and as a result, too often succumb to the dreaded ‘impulse trade’. 해외선물

This is a largely overlooked concept in investing literature and refers to an unstructured, non-method, or non-setup trade.

Succumbing to Spontaneity

We’ve all been there!

You look at a chart, suddenly see the price move in one direction or the other, or the charts might form a short-term pattern, and we jump in before considering risk/return, other open positions, or a number of the other key factors we need to think about before entering a trade.

Other times, it can feel like we place the trade on automatic pilot. You might even find yourself staring at a newly opened position thinking “Did I just place that?”

All of these terms can be summed up in one form – the impulse trade.

Impulse trades are bad because they are executed without proper analysis or method. Successful investors have a particular trading method or style which serves them well, and the impulse trade is one which is done outside of this usual method. It is a bad trading decision which causes a bad trade.

But why would a trader suddenly and spontaneously break their tried-and-true trading formula with an impulse trade? Surely this doesn’t happen too often? Well, unfortunately this occurs all the time – even though these transactions fly in the face of reason and learned trading behaviours.

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