How To Stay Out Of Bad Trades

How To, Stay Out, Of,  Bad Trades, Forex Training, fx trader, forex

As a Forex trader, you constantly take trades.  That’s given. Yet, for some of those trades you might look back and think “why did I take that trade, again?”. You had no reason to enter that trade. That is usually accompanied by an unpleasant feeling of frustration. The question that arises is: how do you keep yourself out of bad trades? How can you not let bad trades affect your trading returns? The easy answer is: don’t take them. “But how?”, you might say. Answering this will be the purpose of this article. Let’s just make sure we both agree on what’s a bad trade…

What is a bad trade?

You have a trading plan, right? (if not, create one!) At any time, if you enter a trade that doesn’t respect your entry criteria, you’ve entered a bad trade.

Now, the definition of a bad trade can go further because you might go against your plan after you’ve entered the trade, but for the purpose of this article, I’ll keep the definition of a bad trade as “a trade you’ve entered that doesn’t respect your entry criteria”.

I understood pretty quickly that taking bad trades wasn’t the way to make money in Forex trading. Nevertheless, it took me a very long time to figure out how to not take those bad trades.

Ask yourself questions

The trick, I’ve found, is to force myself to think and realize what I’m doing.  Taking only a few seconds before entering a trade to reflect helps tremendously. That is done, by asking yourself a very simple question: “When I’ll look back at my trade at the end of the week, will I feel proud of myself or disappointed for taking it?”

Taking a trade that meets your rules should make you proud of yourself, whether it ends with a profit or a loss.

When you enter a bad trade, however, you’ll often find yourself feeling disappointed afterward, because deep down you know you were not supposed to press the buy/sell button.

How to make it work?

Although the trick I provided you with is really simple (i.e. ask yourself a question and answer it), I do want to provide you with a few tips that worked for me to implement that practice.

The problem is, you often can’t trust yourself to act accordingly under stress, fear, or any other emotion. Something must be done to interrupt yourself before you push the trigger on that bad trade.

The easiest way I’ve found is to have a visual reminder (i.e. a paper sticked to your screen saying “Ask yourself this: ‘When I’ll look back at my trade at the end of the week, will I feel proud of myself or disappointed for taking it?’”).

Make that visual reminder big so you don’t miss it.