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Nick Goold

Did you know that taking a large profit or having a significant winning streak could adversely affect your mental state?

It's true! It's not just after taking a loss that your mental state is affected. In fact, the more you win, the more you will need to be careful. You need to keep your cool, even after big profits, and keep a close eye on your current mental state.

Trader's emotions

Emotions can make it difficult to follow a trading plan in different situations. It's easy to understand that mental health can be affected badly by a losing streak, but few traders appreciate that it can be disturbed just as much after a winning streak or a big payout. That's because many traders unknowingly break their trading rules and open new positions they shouldn't, without realising that they have become distracted by overconfidence.

After making a significant profit, traders feel confident their skills have improved and naturally want to trade again immediately to make even more money. There's an increasing desire to make more and more money while you're doing well. However, continued success in this situation is unlikely because you're likely to forget to follow your trading plan and instead concentrate only on making more money with each trade.

Successful traders are always committed to following their trading plan and only trade to accumulate profits when market conditions are favourable. Successful traders understand that keeping to the rules, rather than rushing to capture every move, is the only way to make money consistently over time. You can make a profit at any time by chance, but it's much more likely by following a trading plan. Chance-driven profits are typically not repeatable in the future. However, a 50% or more advantage in a well-tested and understood trading plan will allow you to build up profits over the long term. Instead of focusing on immediate profits, take a long-term view of trading.

Improve by learning from these trader comparisons.

People focused on each separate trade...

✓ Want to make a profit from every single position they take.

✓ Feel excited every time they take a profit.

✓ Trade without preparation or analysis of previous trading performance.

People who remain calm after taking a large profit...

✓ Focus only on following the trading plan while holding a position.

✓ Continue to focus on the trading plan even after making a large profit.

✓ take a break if their emotions are running high, follow their trading plan and wait for the next opportunity.

To improve your trading you should analyse your results and understand any mistakes in the trades you executed. Always record every trade, analyse the results and compare them with your previous records. If the results are poor, review the trade, find out what exactly caused the problem and identify areas for improvement. It's dangerous and you may lose even more money if you carry on trading without doing this analysis.

Areas for improvement

(i) Did you plan the trade carefully?

(ii) Did you prepare correctly?

(iii) Did you misjudge your entry point, or was it slippage because the market moved quickly?

(iv) Did you miss any news related to the market?

Although you may feel good after making a large profit, trading is about consistency and making money over the long term. If your feelings are affected by the outcome of one trade, you could get too excited, and then the next trade may be a bad one, and quickly your initial profit turns into a loss and a bad day of trading.

Successful trading is always about following a plan and enjoying the trading process rather than just the trading outcome. This awareness will shorten your journey to becoming more successful.