By The Discilined Trader
I was disappointed by the action of the market last week, which saw 37 points of profit on my well-timed short position go up in smoke; news from the EU summit gapped the market higher and promptly turned my position from positive to negative.
This week, on a thinly traded 4th of July holiday week, the market continued to grind higher and my short position on S&P 500 was stopped out at 1364. Trading losses are inevitable but having the opportunity to take profits off the table and failing to act on my own instincts and trading rules is highly frustrating to say the least! I had committed two cardinal trading sins, by holding a position ahead of an important announcement and more importantly by failing to protect my winning position when I had a respectable profit on-side.
One of my trading rules is to never let a profit turn into a loss. 37 S&P points qualified as a decent profit worthy of protecting, so I should have trailed my stop to the opening level, to prevent any potential losses from occurring. Had I been stopped at my opening price of 1346 I would not have had to bear the brunt of realising an actual loss. Another one of my rules is not to trade before an important announcement, I knew the EU summit was looming yet I kept my position regardless.
The bottom line is that my conviction in a resumption of the trend over-ruled my trading discipline and by throwing caution to the wind I failed to adhere to an important strategy in risk control. However, as a disciplined trader I have an open mind and can admit when I’m wrong and move forward, not dwell on the loss and wait for the next opportunity to present with a valuable lesson learnt.
The market can be masterful and trick the most self-disciplined and educated of traders among us. We’re living in uncertain times with a tough and volatile tape to navigate and anyone can forget to be disciplined from time to time even - the Disciplined Trader.
The Disciplined Trader is an average guy who has little fundamental knowledge of the financial markets, yet he consistently makes money trading. He simply applies the basic rules of trading discussed in bettertrader.co.uk and executes his trading techniques applying great discipline.