In today’s episode, we are going to discuss why it’s so important to trade what you see and not what you want to happen!
You will often hear traders throwing around the phrase “trade what you see”, however, the reality for most traders is the opposite – they trade based on what they think will happen – driven by emotions and wishful thinking.
Psychological biases can explain how our brains are hardwired to make assumptions
This goes back to the subconscious mind and the filter from which we see things
Think about the scenario where you see a huge rally but did not take a part in it
You may enter long (despite not having a trade entry) because you calculate the amount of money you could have made, and then jump in long with the hope that the rally will continue.
You make your analysis, you follow your rules, you pick a trade that fits your criteria, and then it turns into a loss.
No matter how good your analysis and how well you follow the rules, even the best setups will fail.
How to start to trade what you see instead of what you think
- Next time you are about to make a trade, ask yourself “Do I have an edge or is this something I want to happen”
- Wait for more confirmation – Many traders jump into the markets in anticipation of a move that just might not materialize. If you wait for a market to break above resistance to buy will give you higher prob than getting long below resistance, hoping for a breakout
- Use a trading checklist to ensure your trading decisions are objective and the trades are well qualified
- If/then scenarios so that you always have a plan regardless of what the market does
- Trust your analysis and your process; do not listen to other people’s opinions or trades; they may have a bias of their own.
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