It’s not uncommon to hear forex traders say that keeping calm despite the ups and down in market activity is what separates good traders from bad traders.
Just as importantly, however, is your ability to keep your emotions in check after a string of winning trades.
You may have managed to generate some nice gains, but your goal should be to build on your winning streak. Unfortunately, this is easier said than done for most traders. Many feel overconfident after winning left and right. This isn’t a license to think too highly of yourself. Overconfidence can bring you down sooner than you’d imagine. So, how do you avoid being an overconfident trader while building on your wins? Here are a few tips:
1) Be your own critique
It’s always helpful to discuss trade ideas with a fellow trader or even a mentor. But before heeding the advice of others, you should make sure you know everything there is about your own trade ideas.
What can market drivers invalidate my trade idea? What steps should I take when my idea doesn’t go as planned? These questions allow you to formulate contingency plans. It’s convenient to think that your trade setups are fail-proof, but there’s always the chance of losing if you’re not careful.
2) Set your entry rules
Once you make consecutive winning trades, you might feel tempted to make even more trades. Overtrading might cause you to lose all your gains. Before you even make more trades than you’re accustomed to, check your trading plan to remind you of the basics.
The reason behind your winning trades might be your well-thought-out entry rules. Why deviate from what has worked for you? If the price action doesn’t meet your entry criteria, there no reason to jump in. Never rely on gut feeling alone. You can also set up your entry rules in a trading robot like QProfit System to ensure that all the trades you enter matches your criteria.
3) Limit your losses
When you’re on a roll, it’s a prudent move to set a cap for your losses. Many traders feel indifferent about losses after winning a few trades in a row. Before you realize it, you might incur one loss after another without doing anything. You lose all your gains just as quickly as you earned them.
It’s recommended to take a step back and figure out how much of your gains you’re willing to lose. If you’ve already hit this threshold, you may want to reconsider your strategy and examine where you can make adjustments in your forex trading plan.
Without question, winning feels good. But it isn’t a license to become lenient with your trades. Ultimately, it all boils down to your trading plan and sticking to it. This helps you avoid feeling overconfident after a string of winning trades. Remember that being on a win streak is when you’re most vulnerable to careless trading. The last thing you want to happen is to see all your profits vanish right in front of you just because of lack of planning.