Psychological Stops – The Common Sense Stop Loss

We have all heard about using Physical Stop Losses in the markets to avoid the chance of financial catastrophe, but how many have heard or use a Psychological Stop on their trading?

For me there is no trading for me at the moment as I am packing up and moving house.  So I have placed a Psychological Stop on my trading until I am set-up in my new home and able to focus solely on my trading as opposed to having 101 other things going on around me.

So I created a list of possible situations that you can use for times when you are nowhere near 100%.

Occasions like:

–1. Divorce or separation

–2. Significant person dies

–3. When a child is born

 –4. When you move home or office

 –5 When feeling psychologically exhausted or burnt out

–6. When you are so excited about a position that you feel like doubling your position

 –7.  When you are on a vacation

 –8.  When you are on a business trip and cannot follow the market

I tend to call these the “Common Sense Stop Loss” because you should be flat, pure and simple.  And yet despite them being common sense I meet traders who time after time exhibit little common sense and try and trade through these stressful situations.

I once took a taxi ride with a fellow ‘trader’ as we headed off to deliver a seminar…a seminar she was already late for.  In the back of the taxi I watched in amazement as she proceeded to open her laptop, curse in vain with a patchy internet connection, open her charts, do her analysis, open her trading platform, give the driver instructions, do her make-up and place a trade.  When I questioned her about her actions she told me that as she was a ‘professional trader’ she had to get this trade on which was a ‘dead cert’  and that mobile internet was the way forward for placing trades wherever and whenever she liked.  I did suggest that I’d never met a ‘professional trader’ who would take such an approach but it fell on deaf ears.  I just raised a wry smile and concluded that she was a punter, a gambler, chasing money and far removed from being a professional trader.

Oh and that dead cert trade she said she had to get on?  It failed. Badly.

Do yourselves a favour, trading is hard enough as it is.  Use some common sense and stay way from trading when you’re experiencing stressful situations in other parts of your life.  The markets will still be there tomorrow.  There will be another opportunity along soon enough.  Even though you may not be taking trades you can still spend time on other elements that make a valuable contribution to your future success.

Trade well……or not, as the case may be. The choice is yours.

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About FXTraderPaul

A professional Trader and Coach, FXTraderPaul blogs about his adventures from the front-lines of FX Trading. A Trader and educator who can walk the walk as opposed to merely talk the talk!

View all posts by FXTraderPaul

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  1. Trading Update 8-11/02/10 Cable, USDCHF & GBPJPY – +124 points « FXTrader Adventures - April 30, 2010

    […] London to the rural idyll of a small village in Oxfordshire.  As I mentioned in my post on Psychological Stop Losses I placed myself under a stop trading order whilst I resolved my move and settled into my new […]

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