Forex Market Psychology

15. The strategy of impulse control

Written by forex

The most serious disease of many novice traders lack discipline. Instead of adhering to a plan trades many beginners lose control. They impulsively abandon his plan, reaping the fruits in the form of an irregular profit, and often serious loss. Psychologists refer to the discipline as “impulse control”. There are a number of classic studies that illustrate how people can increase their ability to control impulses.

As a trader, You may seem interesting these strategies increase the level of self-control.

In the original study impulse control Dr. Walter Mischel with colleagues examined children’s ability to delay reward. Like many children, the participants were a little hungry and they were asked to eat bagels. To get a bagel, it was required only to press the call button and the technician will bring order. But there was a catch: If they waited, resisting the temptation to call, they could get a whole bunch of bagels, a delayed but more desirable reward. In this study, interesting situational and psychological factors of how long a child could delay the receipt of compensation. The first factor is the visibility of the awards, whether or not it’s right in front of the child, or were hidden. As expected, it is difficult to postpone compensation if bagels are in front of You. The kids couldn’t wait. When the food was right in front of them, they preferred to eat one bagel at once, than to expect a bunch then. This conclusion is especially applicable to trading. The trade is not too reasonable to constantly monitor the progress of the transaction on the screen. Some traders say this is largely similar to slot machines. It just entices You to play, when in fact you only need to wait for the signal to exit. If You have a problem with impulse control, You should avoid mesmerize screen when there is no pressing reason to control the deal. To combat impulsive temptations you can use automatic orders to your trading platform. Regardless of how You proceed, it is useful to remember the natural human tendency wants to close a profitable deal immediately to avoid the risk, instead of having to patiently wait for a signal and exit according to your trading plan.

To enhance impulse control, you can also use the strategy of thinking. For example, Dr. Mischel found that children could refrain from the desire to eat bagels, if the change of point of view on them. If they thought of bagels as a food they wanted to eat. But if they were bagels, as wooden or plastic wheels, it was much easier to resist. Similarly, if they pretended to be around the donut there is a frame, and trying to convince myself that seeing just drawn a bagel, it was easier to defer compensation. This finding is also suitable for trading. One of the main reasons why novice traders to abandon trading plan is that they consider the capital invested in the deal, as real money. Think about what They could buy with that money and how nice it would be to spend it. Of course, invested just real money, but it is not necessary to consider them from this point of view. It is useful to treat the capital so abstract as possible. Better to see it in percentages or numbers only, which do not relate to anything tangible. So it will be easier to maintain discipline. Also, as children are unable to refrain from bagels, if you do not see them as food, traders can avoid acting under the influence of fear and greed, if you do not see hidden in the equity cars, luxury items or home. It can be a mental exercise, but it works. The more You abstract from money invested in a particular transaction, the more logically and dispassionately You will act.

If impulse control is a problem for You, don’t lose hope. There are strategies You can use to raise your ability to maintain discipline: avoid too often to look at the screen and maximally abstracted from the transaction. Never forget to follow the detailed plan of the transaction; do not leave without any opportunity for the development of events or you will be tempted to opt out of the plan, You will be able to more consistently and trade profitably, and will achieve long-term success of the winning trader.

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