There are some traders out there who know all they need to know from a technical point of view to make a success of trading the markets. They have found a method that suits them, as well as understand the necessity of good risk control, and of keeping their emotions under control. Yet, for some reason, they cannot achieve long-term success.
They may do well for a period, and start to make some decent profits, only for there to be a rapid reversal of fortunes in a short period of time. They may go through several of these boom and bust (or snake and ladder) phases, with weeks or maybe even months or hard-earned profits vanishing in a matter of days.
These people know that they can make money, but they have short periods where things get out of control, and they end up back at square one. If they can eliminate these moments of madness, they will be on their way to success.
Why is this? And how can you stop yourself from repeating the same mistakes over and over?
Well, maintaining a trading log, together with notes on your thoughts, feelings etc., will undoubtedly help. Keep a record like this, and you may start to see a pattern or recurring theme, which may indicate why these periods occur. This could pinpoint the problem but you then need to be able to implement some measure to eradicate these issues.
What if someone else you knew really well was watching you at your PC the whole time, and could stop you taking on trades that didn't match your system, or stop you taking on too much risk on a position?
Switch the scenario around - how would you react if you were watching another trader doing the same? I bet you could almost see yourself cringe if someone took on too big a risk on a trade, partly in desperation, partly in anger, in an attempt to claw back losses. You would wonder why they are taking on positions that don't match their system criteria. I bet you wouldn't be able to resist saying something, trying to stop them do it.
Try this. Imagine you are watching yourself trading. You are standing in the corner of your own office observing yourself sitting at your PC, and watching you trade. You can see the emotions playing themselves out. You can see the position size being used. You can see the charts, and see if the entries are per your system rules, as well as adhering to your stops and exit strategies.
And, if you end up going against your system or risk parameters, you will hear your voice from the corner of the room telling you to get up, walk away from your PC and think about what you are doing, or maybe even telling you to switch the PC off for the rest of the day.
You know that these phases occur when you lose control of what you are doing and your thought processes. All forms of common sense and rationality go out of the window. Adopting such a method may help you avoid the dreaded self-sabotage.