Forex traders who want to make consistent profits know the importance of tracking the rights and wrongs of their trades.
Unfortunately, the impact of the deals they don’t make is often overlooked.
Traders are no strangers to missing out on good trading opportunities. At one point or another we have encountered settings that we would not have taken even though they clearly fit our biases and strategies. Often times, those lost trades also tend to be winning ones.
There are many reasons why we fail to score good points. For example, Steve could have chosen to stay on the sidelines after losing a trade or two.
Tony would have been distracted by another trade while Peter would have lacked the confidence to pull the trigger because his biases did not match those of his friends.
Meanwhile, Natasha met her daily quota and stopped trading while Clint did not have enough balance to make another trade.
Although there are good reasons for missing business opportunities, Not making valid settings can also cost you in the long run.
First, you are slowly ruining your account by not making quite good settings. Opportunity costs can pile up and you won’t even know how much potential profit you’ve lost unless you track them in a journal.
For automated traders, not making all the right trades can create discrepancies between your tested results and your actual performance. You may lose confidence in your system even before you give it the chance to reach its full potential.
Missing trades can also affect your trading psychology. If you make yourself believe that it is okay not to make trades after a string of losses, you are falling into the trap of recency bias.
Losses are part of trading, and the results of your past trades should not affect your decision-making skills on your future trades.
The final and perhaps most dangerous effect of missing trades is their tendency to prompt traders to make retaliatory trades.
Traders who miss a good opportunity tend to “compensate” for it by taking a less than ideal setup and perhaps trading more aggressively while they are at it. As I mentioned before, retaliatory trades can kill your account one trade at a time.
So how can you reduce lost trades? Here are four ways:
1. Diary
It’s hard to address a problem if you can’t see it. What made you hesitate? Were you distracted? How many times has your husband gone your way? What could you have done to avoid missing out on this type of opportunity?
Recording your missed trades in a trading journal can help you identify your triggers and motivate you to stick to your plan in the future.
2. Set alerts and orders
If you don’t have time to watch your charts or aren’t there when good opportunities usually appear, consider setting up price alerts or using entry orders for your trades. You can also take it up a notch by designing a simple mechanical system on your own platform.
3. Reduce your position sizes
If you miss most of your good trading ideas because you lack the confidence to implement them, you may want to reduce your position sizes. This way you will relieve the pressure of trading for money.
Of course, practicing good risk management techniques can go a long way in boosting your self-confidence.
4. Look at the big picture
Accept that losing is as much a part of trading as winning. One or two losses won’t matter if you trust your system and look at the big picture.
Getting used to losses is the only way you can focus on the process rather than profits.
Traders ignore missed trades simply because they do not see their impact. Unlike losing trades they make, lost trades are not usually recorded in spreadsheets with the aim of minimizing them. Unfortunately, you can’t improve what you can’t see.