One of the most common issues I come across in my private coaching is traders who are taking impulsive trades or random trades. These are trades that don’t align with the trading plan and/or are taken without thinking the trade through.
Impulsive trades can ruin the profitability of a good strategy, and lead to frustration and more mistakes because we then begin to doubt ourselves.
In this article, you’ll learn quick tactics that you can start implementing right now to reduce or eliminate your impulsive and random trades and start trading better, with more control, and less stress.
Impulsive Trades Will NOT Go Away on Their Own
Many people think that impulsive trades will go away with more practice, more experience, or a different strategy. They won’t.
Impulsive trades are a mental issue, not a strategy issue. This issue will follow you from strategy to strategy until you do something to change it.
Impulsive trades can even disappear for a while and then come back. So you will need to do the exercises in the next section every time you sit down to trade.
How do you eliminate impulsive trades, especially when they happen in the blink of an eye? You need to interrupt your default mental state. And it’s a lot easier than you think. You can start eliminating impulsive trades today using the tactics below.
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How to Eliminate Impulsive Trades Forever
I use a two-step approach for getting rid of impulsive trades. Both work to interrupt the default mental state (which for me, is overtrading), putting me back in control of my actions and trading.
- First, have a pre-trade routine. Do it every time you sit down to trade. I recommend buying a day timer calendar (those ones that have writing space for each day of the year), and every day writing down a few lines.
- Write down what strategies you are trading today.
- Write down why you follow these strategies; such as they can provide you with a good return if you follow them.
- Write down that you’ll only take strategy trades, and that you’ll commentate the price action throughout your trading session (discussed in #2).
- Calm yourself, reminding yourself that you’re not here to trade or make money on every price move. Price moves will happen, sometimes big ones, which don’t align with your strategy. That is OK. Let them go. Your only job as a trader is to trade YOUR strategy setups; that’s what gives you your profitable edge.
- Write down things you need to remember, and ideally put this on a separate sheet of paper so you can CONTINUALLY refer to it during your trading session. These things might include that you only follow your system, that your job as a trader is to ONLY trade your setups (not to catch every move), that your strategy provides good returns if you do this, as well as details about your strategy that you need to be reminded of (are triggers working, is there enough movement, if a trade setup isn’t clear/clean stay out, and so on).
- Write down what strategies you are trading today.
- Commentate the price action the entire time you’re trading. If you’re continually talking to yourself (you compiled a list of things to continually talk through in your pre-trade routine) about what price is doing, what setup is forming, and red flags (reasons not to trade right now) it’s almost impossible to take impulsive trades unless you stop commentating.
Basically, as long as you keep talking through what’s happening on the price chart, and what you can or can’t do as a result of that analysis, your impulsive trades will be eliminated or greatly reduced.
Keep talking to yourself while trading. Tell yourself what setup is forming and how you’ll trade it (per your plan) as it’s setting up. If no setups are forming, tell yourself that you’re staying out because no setups are forming. Talk through what would need to happen in order for a trade setup to occur. Plan ahead, like a chess player thinking several scenarios ahead.
The pre-trade routine gets us into a calm mental state and also provides us with a few minutes to write down what we need to remember throughout the session. Refer to that list regularly while trading. Commentating keeps us out of the default mental state, which is to take impulsive/random trades. Talking through what the price is doing, and how it relates to strategy and our actions, makes sure we’re only taking trades that we should be taking.
Commentating needs to be done constantly for it to work. Just keep talking. If your mind wanders, that’s fine. Just get back to commentating and reviewing your written notes as soon as you remember.
As long as we keep doing these things, impulsive trades will stay out of our trading.
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Final Word on Eliminating Impulsive Trades
If you do these things, your impulsive trades and random trades will be eliminated or greatly reduced.
When you do have impulsive trades, it is because you didn’t/weren’t doing these things at the time of the mistake.
I have been trading since 2005 and I still do these EVERY DAY. If I stop doing them I tend to take impulsive and random trades. By doing the exercises every day you stop the impulsive trades BEFORE they occur and do damage.
Just because you haven’t had impulsive trades in a while isn’t an excuse to stop; keep implementing the tactics discussed, always. If you stop, impulsive trades will likely return.
If you’re doing these things, but you still end up taking impulsive trades then you may have a very impulsive personality. There’s nothing wrong with that; it likely serves you well in other areas of your life. Yet if it’s negatively affecting your trading, you may wish to do a parts negotiation between your Trader Part and your Impulsive Part. A parts negotiation gets different aspects of your personality aligned toward a common goal. This isn’t always required, but if you’re very impulsive, you can do a parts negotiation outside of your trading time to minimize the damaging effects.
Cory Mitchell, CMT
Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage. The author is not a psychologist, and the article should not be considered mental or health advice.