Last week I had an interesting conversation with my friend who is starting out his trading journey. He is investing in commodities and he just went long on oil. He looked pretty proud of himself, like he outsmarted everyone else. “But why?” I asked. “It can’t go any lower”. He had no good arguments for that. I tried to tell him that it’s bloody massacre on oil and downtrend is strong. He knew better.
Today, after Goldman said it can go as low as 43$ and prices felt again, he wasn’t so happy about his decision. Fortunately his position was very small but he had a great lesson. Daily oil:

oil-daily

How many of experienced traders can share a similar story to my friend who is just starting out? I know I can. Sometimes my ego takes lead, I want to be alpha and omega of stock/forex market. Sure enough, almost every time I’m punished for that. Even if you have a Noble from economy, it still can go wrong. That’s a human nature. You can have a good trading plan, but emotions can destroy your actions.

We’re all human beings. You should be aware of your weaknesses. That way you will be able to make better trading decisions.

How to fight with that? Stick to your trading plan, keep your trading journal. This was my turning point. For a long time I was tweaking my trading system, I was looking for some better tools, bigger gains. But the tools were ok, the problem was with poor execution of trading plan because there was too much wishful thinking. I noticed that after reading my trading journal. When the trade is fresh, there are some emotions about that trade and that’s why you may not see clearly how it was executed. When time goes by and you will make other trades, the old trade and emotions will fade away. That is a good moment to look back to trading journal and check with cold head how it was executed.

There is no easy way to success. The important thing is to remember that it can happen to you, even if you are trading for more than few years.

It all comes with experience and failures. For example I bought some time ago a stock which is now about 45% up, below weekly chart:

stalprod

Nice. I don’t know how high it will go. I think that there is a potential for 100%+ move (because of very good fundamentals and old highs), but this is only my thinking and market may do opposite. That’s why I’m simply rising my stop loss so I can take profit in case of strong sell-off. Will I catch a whole move to the top? No, I’m almost sure of that. Will I close that trade with profit? Yes. It is all because of following my trading plan.

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