In this article we are going to investigate the concept of bad and the good trades.
We’ll note that good trades are a result of making ‘good trading decisions’ but alas may still robo forex have ‘bad outcomes’.
In contrast, 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 mold on most newcomers 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 that assist identify the best trades to suit particular and personal trading specifications. We have a number of trading strategies which can be used to gather rewards from the market, with each strategy using a particular structure or ‘setup’ to make a sensible trade. Most traders however don’t have such a structure, and as a result, labor succumb to the dreaded ‘impulse trade’.
This is a largely overlooked concept in investing literature and refers to an unstructured, non-method, or non-setup trade.
Succumbing to Improvisation
We’ve all been there!
You look at a chart, suddenly see the price transfer to one direction or the other, or the maps . might form a short-term pattern, and we jump in before considering risk/return, other open positions, or most 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 preliminary. You might even find yourself gazing a freshly opened position thinking “Did We place that? inch
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 the one which is done outside of this usual method. It is a bad trading decision which then a bad trade.
But why would a sellers suddenly and automatically break their tried-and-true trading formula with an impulse trade? Surely this doesn’t happen labor? Well, unfortunately this occurs all the time — even though these transactions fly facing reason and learned trading behaviours.
Even the most experienced traders have succumbed to the impulse trade, so if you’ve done it yourself don’t feel too bad!
How it Happens
If it makes no sense, why do traders succumb to the impulse trade? As is usual with most bad investing decisions, there’s quite a bit of complex mindsets behind it.
In a nutshell, traders often succumb to the impulse trade when they have been keeping bad trades for too long, hoping against all reason that things will ‘come good’. The situation is made worse when a sellers knowingly — indeed, willingly — places an impulse trade, and then has to deal with additional travel luggage when it incurs a loss.
One of the first psychological factors at play in the impulse trade is, unsurprisingly, risk.
Contrary to everyday opinion, risk is not necessarily a bad thing. Risk is simply an expected part of playing the markets: there is always risk involved in trades — even the best structured transactions. However, in smart trading, a structure is in place prior to a transaction to accommodate risk. That is, risk is factored into the setup so the risk of loss is accepted as a percentage of expected outcomes. When a loss occurs in these situations, it is not as a result of bad/impulse trade, nor a trading mindsets problem — but simply the result of adverse market conditions for the trading system.
Impulse trades, on the other hand, occur when risk isn’t factored into the decision.
Risk and Fear
The mindsets behind taking an impulse trade is straightforward: the investor ingests a risk because they are driven by fear. There is always anxiety about losing money when one plays the market. The difference between a good and a bad sellers is that the former is able to manage their fears and reduce their risk.
An impulse trade occurs when the sellers abandons risk because they’re afraid of missing out on what looks like an extremely ‘winning’ trade. This impulse experiencing often causes the investor to break with their usual formula and throw their money into the market in the hope of ‘not missing out on a potential win’. However, the impulse trade is never a sensible one — it’s a bad one.
If the sellers identifies a potential opportunity and automatically decides the doctor has to have the trade — and then calms down and uses good strategy to implement the transaction — then this is no longer an impulse trade. However, it the sellers disregards a set-up trigger or any form of method in making the trade, they’ve thrown caution to the wind and have implemented a bad trade.