We often talk about the importance of following a trading plan. However, following a trading plan without bending any rules is easier said than done. Here are a few reasons why most traders have trouble sticking to their trading plan.
The first reason is probably the most common one; traders fail to follow their trading plan because they panic. There will always be times when your trades flow perfectly and others when they do not behave as planned.
Some currency traders become nervous and taken off guard when their trades don't go as planned. They can lose their grasp of reality and speculate impulsively with no regards to their trading plan.
To avoid acting impulsively, a trader needs to consider all possible scenarios before placing an order on the foreign exchange market. You need to have an action plan for all scenarios! This way, there will be no more surprises, you'll know exactly how to react without panicking.
A lack or excess of confidence after a series of losing or winning trades can also divert traders from their trading plan. If you run into a long series of losing trades, a lack of confidence can make you miss good trading setups. And inversely, if you having a winning streak, you might feel overconfident and make trades that don't conform with your trading plan.
Keeping a trading psychology journal can help you manage your emotions. Remember that your plan is based on predefined rules. Remember the risks that you take when you deviate from this plan!
A lack of confidence in the trading plan leads some traders do not follow their plan when they think that a trade will not work out. The result is that you end up taking trades that are just based on simple intuition and not on statistically proven probabilities of success.
The trading plan is supposed to give you a long term advantage. One way to solve this problem is to have a detailed trading journal to keep track of your statistics. Seeing that your trading plan works and gives positive results over the long run will give you more motivation to closely follow this trading plan.
Lastly, there may be times when you feel compelled to make a trade because your trading plan requires it. Or vice versa, you don't make all of the trades that are required because of your life and your personal obligations.
This inconsistency can affect your bottom line. At the end of the day, you need to determine whether your trading plan is right for you. Ask yourself, "Does my trading plan fit my style of trading?" You need to know your own trading personality and your trading style in order to develop a plan that suits your lifestyle and your personality.