Have you ever placed a trade at an area of support, only to see your position move into negative very fast? You remember how you felt? The feeling of despair? The prickling sensation on your forehead.

You go over and over the trade in your head, examining then re-examining why you are feeling like this but you just cannot come up with an answer.
What do you do? How do you go about fixing something when you don’t know what the problem is?

Trading can get emotional at times. When you are faced with the situation just described, the best thing to do is to define the problem. Before you can solve the problem you have got to know what the problem is. Although this sounds obvious, it can be quite a complex task. And complex tasks are best dealt with using a step-by-step approach.

The first step is to ask a question: What is the problem I am dealing with?
It is important to remember to begin each question with the word what. Do not start with why. If you ask why you will get twenty different answers and they will all be correct.

Structuring a question that begins with the word what implies a specific response and that is exactly what you are looking for - something specific. Try it and see the results for yourself.

So how does this apply to a trader?

Over the last few weeks I have been coaching a number of traders. When I am told that they want assistance in their trading my question is:

What’s the problem?

Usually the answer is along the lines of I have been having a series of losing trades and I don’t know why. Every time I enter a trade it goes against me. It’s as if the market knows that I have just come in and it wants to punish me.

Does this sound familiar?

Yes, we have all been there. So what is the next step?

Rather than blaming the market, you need to look at the reason for your entry. In other words there is something specific that happened before you put your trade on. There could be a number of reasons. For instance, you are following advice from a newsletter or a broker recommendation. Maybe you saw a chart pattern that you recognised. It’s also possible that you are trading on your sentiment.

Whatever the reason is you need to now acknowledge that the method you are using which gets you into consistent losing trades is simply not working.

Now we go onto the next step which is hard - acceptance. Accepting there is a problem can be difficult for most people. Instead they will go into denial. This is critical to understand because once you can accept that there is a problem, you can now seek solutions to rectify the situation.

Before we can start to resolve the problem we need to examine the components that are related to the problem. Do you understand enough about the market you are trading? Or is the method you are using not suited to you personally? Is your trade size too large for your comfort? Maybe the method does work but has a large drawdown where you would have to accept a string of losses before you gain a large win.

By going through the process described, we have got to the root of the problem and we can start to find solutions. The solution will be different for every problem, and I cannot provide the answers to everything here, but hopefully this has provided you with some food for thought.

Good luck and happy trading

Tom Hougaard

Please remember spread betting is leveraged and can result in losses quickly exceeding an initial outlay. It’s not suitable for everyone and you should make sure you fully understand the risks involved. If you have any doubt, please seek independent advice.