One of the major reason why some traders stay as the losing trader because they try to catch every move even it is fake or inducement. Meanwhile chasing the every market move, it leads to make the risk to reward unfavorable. While chasing the every market move they end up doing overtrading, fomo entries and emotional decisions. The market moves every second, every minute if you don’t control impulses then eventually you will remain a losing trader. Exactly that’s a point where you need to be patience and in case if you have read my post on why patience is the biggest edge in trading.
What Does Chasing the Market Mean?
When a trader trade at any levels without understanding the concepts, behaviour of the price, psychology in order to generate the quick profits. This includes fomo entries, greed and emotional decision making. The traders plans the trade without the proper confirmation and valid setup. Chasing the market states that how much a trader is impatient, lack of discipline, no awareness about the market structure and etc. Let’s understand with the examples.
- Let’s say you opened the charts for the day, you see the bullish move and now you want to capture all the move, there is no valid set up there, no confirmation, you entered, this includes fomo entries.
- You see the market is under bearish pressure and you can see the strong bearish move which is coming from the certain level. In this scenario because you missed last trade and stopped out. Now you want to recover the last trade loss, here the revenge trading mode engaged.
- Let’s take the another example, suppose that you ended up you last trade in green colour. Now you see the bullish or bearish move, in this case your mindset is i want to double my profit for the today but ideally you should be done for the day, here greed involves which leads to the emotional decision making.
Why Traders Chase Market Moves
This problem often occurs with the beginner traders because every moves excite them and they think every move is the opportunity to make money or profits. They trade out of boredom, they want some sort of impulsiveness which made them think that they are doing something. In today’s world every person use social media and the social media set the unrealistic expectations to the viewers but in reality these are realistic but it takes time. The beginner traders most of time are influenced by social media and they end up blowing up their capital 2-3 times in the hope of to get that lifestyle in the one night. Meanwhile 2 main reasons why traders chases every market move
- In the hope quick money and profits.
- And the lifestyle shown by the influencers to their viewers or audience.
The Problem With Emotional Entries
Emotional entries includes the entry at the poor location where the luck and predicting the price factors involves. This often involves the entry in the false breakdown or breakout, inducement, ranging markets and etc. When a trader enters emotionally in a trade, their have the poor risk to reward ratio, because in the hope to end up in green they start increasing the position sizing or increase the risk. Then they don’t target like 1:2, 1:3 and 1:4 something like that, instead their risk to rewards looks like this 1:0.5 or 1:1 something like that. That’s how their risk to rewards ratio start getting poor.
Common Causes Of Emotional Entries
- Greed: Some traders want to win every trade and try to catch every move without following the strategy and the proper confirmation.
- Fomo Entries: This often happens when a trader thinks that someone is making on every movement, when he/she can do why can’t i. This creates fomo then it leads to the fomo entries in the trade.
- Revenge Trading: When a trader refuses to accept the loss as the part of trading and he/she takes it personally. It leads to enter in the trade in order to recover the previous loss instantly. This process is known as the revenge trading.
Why Patience Matters More Than Constant Trading
Patience in trading states that waiting for the price to tap your trading zone or level. This involves the control over the impulsive decision, fomo entries, greed trading, revenge trading etc. Patience improves the overall trading performance, prevention from unnecessary trades, losses, improve setup quality and etc. How Patience helps you to grow in you trading is discussed below:
- The patience prevents you from the unnecessary trades which aren’t aligned to your trading rules. It helps you focus on the quality setup only.
- Patience helps you to follow clear plan of action while taking the trade which includes the candle confirmation, risk management and all.
- It teaches how to stay calm and composed, when the market is moving against you or isn’t giving you results you want.
How Chasing the Market Leads to Overtrading
Because the market never stop moving and eventually if you will follow the market by executing the trade wherever the market is going, then the overtrading will take over you trading. Additionally this overtrading involves revenge trading, fomo entries and all which i have discussed in above the section as well as in the previous blogs too.
- When overtrading take over your trading skills, you start ignoring the your trading rules.
- Avoid the risk management and candles confirmation before making the entry in the trade.
- You start taking the trade based on the luck and by predicting the price.
What Overtrading Damages
There are some factors which overtrading damages. let’s discuss one by one
- Discipline: When you start ignoring all you rules and your trading hours. The discipline starts getting weaker day by day because you made the rule to stay disciplined now when you don’t follow the rules then how will you remain disciplined.
- Confidence: When you end up your most of trade in the red color, your confidence will start shaking. Because discipline builds confidence and confidence builds consistency. Well these factors are co-related to each other.
- Consistency: The last factor when consistency getting poor because when you will see most of you trades in the red or losing trade. You won’t feel like trading anymore and incase if you do you will lose because you have lost all your confidence by doing overtrading. In the end you will stop trading.
The Importance of Having a Trading Plan
Having a trading plan is necessary in trading. Because when you have the trading plan you will know when to trade, what to trade, how to trade etc. Having the trading plan keeps you disciplined throughout the trading day. A trading plan avoids the emotional decision which fomo entries, trading in greed and all. A trading plan involves:
- Candle Confirmation: It tells you on which candle like engulfing candle, shooting star etc, you are gonna make the entry in the trade.
- Clear Trade Conditions: This involves on which candle like doji candle, inverted hammer candle etc. Let’s suppose that you trade on doji candle confirmation. So my clear trade conditions would be, when the market will make doji candle confirmation with 25 pips of risk then only i’ll trade. That’s how clear trade condition sets.
How Traders Can Stop Chasing the Market
The best way to prevent yourself from chasing the markets is to journal your trade and try reduce your emotional entries. What includes in emotional entries you can read in the above paragraphs, here i’ll explain the journaling.
- Journal: Journaling means simply note down the whatever you have done during the trade, like trailed the sl 3-4 times, any mistakes or emotions included during the trade. With how much quantity you have traded (lot size) and how much you risked on the trade, what was the logic or reason behind the trade. The market condition met all you entry criteria, did you follow all the trading rules while executing the trade. By journaling the trade, it helps you to improve the mistakes that you are repeating or which area of my trading needs to get improved and etc.
Final Conclusion
The market has endless opportunities for everyone but only if you stay discipline and don’t chase the markets. The reason why 90% of the traders are in the loss because they take emotional decision and make fomo entries in the trade and later on they end up losing.
Success in trading often comes from controlling the impulsive decisions, staying disciplined and being patient for your set up.
In the long run the traders who patiently wait for their set up are the one’s who make it through the trading, then the one who chases every move.