Forex Trading Tip #2: Turn Off Your P&L!
Turn Off Your Profit & Loss
Trading is one of the most psychologically stressful endeavors you can undertake. It is a tumble-dryer of emotional stimulus that can drive you crazy if you don’t know how to manage it.
I know all too well exactly how difficult it can be to make the right decisions under pressure when trading, especially on intraday timeframes. Trust me, I have literally made every mistake in the book.
If you don’t believe me then I can prove it if you like – I can give you the book. I keep very detailed trading records which is the only reason why I don’t make as many mistakes anymore.
A common hurdle many traders must face when trying to develop consistency is impulsive decisions.
I have already begun covering this topic with my blog post Wait For The Close where I explain the importance of waiting for candles to close before you make important trading decisions.
But another common source of impulsive trading decisions is an emotional reaction to the visual stimulus of your profit & loss fluctuations. I am talking about the $ figure.
You know, the box on your chart that says -$120 or +$530 one minute, then says $-180 or +$490 the next, and makes you want to either ditch the trade before it gets worse or snatch up your profit before it begins to shrink further.
Well, what if I told you that you don’t need to watch that box? What if I told you that you would be a much better trader if you removed it completely and totally ignored how much money your trade is making or losing?
Know Your Job
One of the most effective ways I’ve found to control my emotions when trading is to turn off my profit & loss. I just turn it off completely and pretend it’s not there.
All I see on my charts is my Take-Profit and Stop-Loss orders, and my position size. Nothing more. In fact, the only time I really check my account balance is at the end of the week or when I am flat.
It seems counter-intuitive, right? As traders, our goal is to make money. If we don’t see how much money we’re making (or losing), then how the hell can we do our job!?
Well, if you are wondering that, then it’s because you don’t really understand what your job as a trader is. Your job is not to make money.
Let me repeat that.
Your job as a trader is not to make money. Making money is a by-product of your work, just like any other job on the planet.
Your actual job is to execute your trading system as close to perfectly as possible, and if you are not executing as closely to perfect as possible, then your job is to find out why and fix it.
We Work For Our Money
(Like Everyone Else)
A gold miner’s job is not to dig for gold.
Their job is to establish safe and efficient infrastructure, to operate complex machinery, to manage the operation safely and to follow their company processes.
As a result of doing that, then hopefully, if they did their job right, the by-product will be that the miners discover gold and extract it from the ground to sell for a profit and everyone stays in business.
A soldier’s job is not to fight. Their job is to be prepared to fight.
They spend 90% of their time training, studying, drilling, practicing repetitive processes so that when the time comes to put their skills into action it is all second-nature to them and they don’t allow their nerves to sabotage their training.
Most soldiers, even special forces, spend less than 10% of their career time employed in active combat. Although trading is obviously nothing like serving in the military or getting shot at, for most traders, it’s not all that dissimilar either from an emotional standpoint.
A trader can often feel on edge and anxious, sometimes for weeks if they are enduring a bad drawdown. It can feel like you’re being shot at by the market all the time.
And if you don’t have the right training and processes in place, then you are going to get hit.
Most of the hard work in your trading should be done well before you pull the trigger on a trade through your testing and strategy development. If you need to “work” once a trade has been placed then there is an extremely high chance that your emotions are going to influence your decisions.
Trade Your Plan
(Not Your P&L)
Whenever you enter a trade you should know beforehand where your stop-loss is, where your initial profit target is, where your secondary targets might be (if you trade multiple targets), how much money you plan to risk, how much money you stand to make, and what percentage of your capital that is.
If you know all that beforehand, then why do you need to check your P&L?
Even professional traders at the top of their game like to turn off their profit and loss on their charts. Mike Bellafiore is a big advocate for this, as are a number of Forex traders I follow such as Akil Stokes and Jason Graystone.
The bottom line is: if you need to see your P&L in order to make trading decisions then it is highly unlikely that you are making optimal decisions.
Let the market tell you what to do. Not your P&L!