How to start trading on Forex (psychological barrier)
To begin with, you still need to decide on the concepts. I propose the following interpretation: indecision – the inaction of a trader in a situation where he must enter the market by his or her own rules, as well as the actions of the trader, leading to untimely closing of profitable or unprofitable positions; paralysis – the next stage of indecision, occurs, as a rule, after non-observance of the order (protection against losses) in case of an avalanche-like increase in losses. In the end, the broker closes the losing position (due to lack of funds) or the spontaneous emotional closure of the position by the trader himself.
In my opinion, these problems are mostly inherent in novice traders, since if a person has worked for two or three years on the market, he faces psychological problems of a different plan. Therefore, all the further reasoning relates, more likely, to newcomers who are only planning to enter the stock market or have recently plunged into this environment. From my observations the indecision of the trader manifests itself most often in the first time after entering the market. The problem of indecision, as follows from the definition, implies two aspects: the first – the entrance to the market, the second – the exit from the market. The most interesting is that for all the obviousness the second aspect is often overlooked in the general description of trading strategies. A beginner trader at first is difficult to understand the constantly expanding variety of indicators – and not on book examples, not on a training account, but on his own money – and evaluate the significance and options for the interactions of these indicators. In this period it is important to understand that it is psychologically more comfortable for a trader to keep a position between days or to work only within a day. It is based on the feeling of this internal comfort and it is necessary to select not only the combination of (their) indicators for work, but also the time scale of the work.
As A. Bryuzgin rightly notes in his article, limiting the number of methods and indicators used greatly facilitates the life of the trader. I would like to draw your attention to the fact that simultaneous use of trend indicators and oscillators at the initial stage can significantly complicate the work of the trader, especially taking into account the fact that recently in a lot of analytical reviews on the market, the terms “overbought / resold” are found unreasonably often. To proceed to the study of methods of trade on the basis of Elliott waves, with their variety of interpretations, it is possible only after the successful mastering of simpler methods.
An ounce of practice or pood theory?
Just as with the choice of indicators, limiting the time slices of the market makes life much easier. I met traders who tried to work on exotic time intervals, for example, 23-minute combined with 36- and 53-minute intervals. After that, other time intervals were selected, all repeated at first. Naturally, in the process of studying the interactions of the basic 23-minute chart with the 48-minute, the goal completely lost for which any person comes to the market is to make deals and earn money. If the theoretical delights of the trader clearly prevail over work directly on the market, then the only thing that I can advise in this situation is to get a job as an analyst. Such people are not helped either by mechanical trading systems, because after receiving the signal from MTS, you still need to act, and not to deal with its next configuration, reassuring yourself that MTS is also mistaken and this signal is “absolutely accurate” – false.
As can be seen from the definition, the action-inaction at the moment of being in position should also be referred to indecision. It is indecisiveness not to grow profits (if the position is chosen correctly) or allows you to accumulate losses.
Naturally, when the paper profit from the transaction grows, you really want to quickly turn this profit into an actual one and no longer drag the psychological burden of an open position. Probably, this situation is decisive when choosing the time intervals with which the trader is comfortable to work with. The correct choice of this interval can help in deciding the issue of premature closing of the profitable position. Exit from a loss-limited position is the cornerstone of the entire activity of a trader, and indecision on leaving a loss-making position can result in a complete loss of control over the situation.
If stop-loss orders placed on the basis of technical analysis are not executed due to indecisiveness, try to establish the maximum amount of losses per portfolio per month (for example, 5%, as limit traders of banks), and if losses exceeded this amount – immediately liquidate all positions and do not start trading until the beginning of next month. Otherwise, you simply replenish the rows of cute innocent little animals, from which the hair is cut by professionals. So, if you violated this rule, you lost a percentage in excess of the value you set, and the position is still open, then, most likely, there was paralysis. To determine the state of paralysis is quite simple, and although different people have emotional manifestations of this state, trader slang has a long term (a warm bath).
At the moment of paralysis, you are immersed in a “warm bath” consisting of your own sweat, fear and despair. And this is a very contrasting state – when you move the market in your direction, you get a temporary relief, even experiencing a spiritual uplift, and then dive deeper into a (warm bath). At this time, you are no longer able to adequately assess not only the market, but also many things around you that are not related to the market.
You read the comments of experts in the hope of encouraging words about the imminent spread and indignant when stupid analysts do not see signs of a long-awaited reversal. You are ready to watch all night long, as the rest of the world is trading from Japan to the States. I think, it is not necessary to explain that when such a state comes about, you just need to close all the positions and leave the market for a while. And it is better to do it yourself, and not leave an unpleasant procedure to your broker – believe me, it also does not deliver any pleasure. If you belong to the category of people who enjoy such a state, sooner or later you will lose everything and look for other, cheaper pleasures than the pain test of losses in the stock market.
Form a portfolio
As for Brizgin’s recommendations on overcoming indecision, then, in my opinion, the recipe for trading one paper simply does not stand up to any criticism. A fixation on one paper will not only not help you overcome hesitancy, but it can also aggravate your problems. You will not become an expert on one paper. Such a strategy is more dangerous by emotional attachment to the position. Even if you had the determination to enter the market, then getting out of it by trading one paper is much more difficult.
There is a danger of a certain narcissism – you will admire the position at the time of making a profit, (caring) for it, like a sick child, during periods of losses, but never “shoot” it. And during a lull you will experience on the paper more and more new indicators and trading systems. As a result, you lose the overall picture of the market. For example, it’s difficult for me to imagine a successful dentist who specializes exclusively in the right canine of the upper jaw.
To overcome the indecision it is necessary to work with as many liquid securities as possible, especially since there are not so many of them on the Russian market. With this approach, the problem of entry and exit from the market is mitigated by the fact that it passes from the category of psychological to technical.
You will simply have no time to concentrate on your indecisiveness, because you have time to analyze a few papers and place orders. At the same time, the general trends of the whole market will be more clear, which will save you from a certain number of unprofitable trades and thereby give you additional confidence in your abilities.
If paralyzed, then walking around and telling others about it is useless, hoping for dreams – meaningless (rather, it’s just another symptom), you just have to close everything and temporarily leave the market. Only this recipe for overcoming paralysis is effective, and not the three (basic steps) about which A. Bruzgin writes. However, I do not deny (except for (the provision) about dreams) that keeping elementary records about transactions and having a supervisory authority (even in the person of relatives and friends) reduces the risk of being paralyzed.
Well, a few words in conclusion. By and large, the problems of indecisiveness and paralysis are a small part of what is called capital management. It is competent management of capital, in a mandatory combination with risk assessments, and is the basis for long life in any market, and not just the stock. We must understand that the market is not a place for amateurs. If you want to become a professional speculator working for your own money, not an investor (I apologize for the old joke: (an unsuccessful speculator turns into an investor)), then approach the issue professionally. As a test for professionalism, I can suggest the following task.
With a return of 60, 80, 100% per annum (choose), calculate the initial amount of funds to work in the stock market, provided that you are not working anywhere else and get a monthly (!!!) salary from the market of 500, 600 …. 1000. cu (select the desired value). Try to take into account all expenses, such as paying for a place in the dealing room or using the Internet, a commission broker, a fee for margin loans (if you intend to use them).