'Market and Human' Psychology perspectives with tips on how to avoid common mistakes by 
First of all there is a legitimate system of trading that is called averaging down and is most commonly used in equities. It is where you increase your position in order to average down the price where you entered in order to recoup your losses sooner. This is not what I’m talking about here.
There are statistics that show how retail traders, (you and me) especially beginners, often add to loosing positions and then usually give up their positions at a loss just before the price action goes in their favour. In fact, the brokerage house; FXCM reports on this regularly based on the observation of current orders. That’s right. Most traders stick with bad positions and get out of good ones too soon.
What it the psychology that leads to this?
Simple… We hate to be wrong. It’s that basic. Think about it. When was the last time you were really wrong about something. How did it feel? Did you feel embarrassed? Stupid? Like you should have known better? I know that is usually my first reaction.
Here’s the analogy: As adults, when we work, we usually have learned our jobs pretty well. We go through our routine doing everything we would normally do with few or no mistakes… everyday.
In trading the market frequently goes against us. For most traders, even the very best, the win ratio is often not a lot greater than 50% to 60%. So every second or third trade is a loss. Can you imagine what it would be like to do your job if every other thing you did turned out WRONG. It doesn’t matter what your job is, I don’t think anybody can work in an environment where this is the case.
So, we have to take a different view of our trading. That doing a good job means more positive trades then negative ones. We have to see that a job well done is when this ratio stays above 50% and we manage our risk well to keep our wins bigger than our losses.
Cheers
Pierre,
Thanks for the post here. I don’t think we talk about this kind of thing enough — and I am happy that you have mentioned it here.
Rob
Hi Rob.
Great to have the feedback. much like ‘not wanted to admit when we are wrong’ even talking about this for a lot of us, can be a difficult thing. However it is only in admitting and identifying our faults where we can change. If there is nothing to fix… how do we improve?
Cheers
Pierre
hello.
This is a great article….this has been one of my frustrations for about 2 years of trading now…and this article shoved off the shelf was has been in my heart for years now. Even last night…i was in the correct position with the eur/usd….but put my stop loss too tight (about 24 pips) only to find out in the morning the the move went up…..but without me becuase I got stopped out! However, ( i know this might sound weird)…I feel like a better trader now…..even though….my win ratio is not so great. I feel better now because I am more patience with myself…and am learning that it is ok to be wrong…as long as I stuck to my trading rules and did the right routine. This is a great article and I certianly want u to keep em coming….trading is a lonely business…because no one in my family know that power of forex trading….however, i am learning that it is like golf…..its u against yourself….the course will only provide the playing field. ONly with extreme patience…persistence….and constant striving of knowledge will you become a full-time trader…which is my goal.
Hi tradermane. Thanks for your comments.
I’m glad you are able to get something form my posts. In turn I thank you for commenting as this usually gives me an idea what to write about next and in this case I can see what may be of value regarding your comments.
Cheers and thanks for the inspiration.
I agree with you on this whole idea, but I have found that this style of averaging down has worked extremely well for me, but only on very slow moving currencies like the Eur/Gbp. It was my sole currency pair for about 3 months cuz I was so busy, so I never used stops, traded small lots, always sold and never bought, closed regularly, and on days when I waited for movement I earned interest. It can get very boring though… I tried the same routine on the Eur/Usd and NEVER again. I think to be a good trader you need to accept boredom as well as everything else.