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80-pip AUDSGD Trading Psychology Challenge

During 4M class Wednesday 03 September, I ran a spontaneous experiment/game. Volunteers are invited to take part in a challenge to hold a position until it reaches target or is stopped out. Participants are those who tend to close their positions prematurely. This challenge helps them to understand themselves/ master their psychology while I cover their risk. I conducted this spontaneous experiment/game with the help of 5 volunteers. The objective of the experiment was to address a very common problem among our community of traders: weak psychology. Individuals who have this problem encounter anxiety when they have running position. Result? Positions are closed before target levels are reached. Exiting a position prematurely is no big deal if one has a profitable trade. Unfortunately this problem of interfering affects trading performance over long:

  1. Trade setups are not given the chance to succeed because losing trades are exited prematurely too.
  2. Long term consistency is compromised because risk-reward ratios are not observed.
  3. Positions are handled in an emotional manner, not rule-based.

 

Observation from years of working with new traders

Through years of training, I observed that traders cannot hold onto a winning trade due to weak psychology arising from:

  1. Fear of loss
  2. No proper planning of their trades; not aware of their exit points either their stop loss or target profit
  3. Too large a position size
  4. Negative reinforcement from previous encounters

 

Training solution required

I feel that a training solution can be found.

  1. I will cover their loss to address problem 1 – fear of loss.
  2. We will plan the trade together live during 4M class to address problem 2.
  3. I will enforce the position size of 1 micro contract to address problem 3; the intention is not the money but to gain experience of sticking to the trade until we reach the finish line.
  4. Every participant should have a positive encounter so that we can cultivate a positive reinforcement to break their cycle of negativity i.e. problem 4. Therefore I will also cover their downside so that they can focus themselves on the ride to the target.

 

80-pip AUDSGD Trading Psychology Challenge

With this experiment/game the ’80-pip AUDSGD Trading Psychology Challenge’, we challenge traders to hold their positions until target price is reached.

  • Idea: to let students experience the process of holding a trade until target achieved or stopped out.
  • Currency pair: AUDSGD (this forex pair was selected because it has qualities we look out for with our style of trading)
    • Typical Tflow® setup
    • Positive swap while holding and waiting to reach target price
    • One of the slower pair, with plenty of volatility (candlestick ‘hair’) – tests nerves and endurance
  • Stop loss: 80 pips
  • Target: 125 pips
  • Contract size: 1 micro

Each participant received $8 from me handed out on the spot to pay for their potential loss. If they win, they keep their winning and my $8. In return, I hope they give us their experience of the entire encounter so that other students can benefit. Once entry was identified, participants placed their orders. This is a chart submitted by one of the participants showing the entry price, stop loss and target price. Reward to risk ratio is around 1.5:1.

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Trader-submitted chart of AUDSGD with entry, target price (tp) and stop loss (sl)

 

Game participants

  1. Trader C – Female, retiree, likes to close trade within a day, each trade about 30 pips but suffers up to 50 pips loss.
  2. Trader D – Male, middle-aged self-employed, inconsistent behaviour, tends to overstay trades and would get stopped out. Aspire to be self sufficient via trading.
  3. Trader S – Male, worked at forex broker for many years, scalper. In his words, able to hold a trade 40% of the time only. Trying to move towards position/swing profile.
  4. Trader V– Male, on his 20s, exits winning trades too quickly.
  5. Trader G – Female, young.

 

After-thought

In case readers feel that $8 reimbursement/ 1 micro contract for this challenge is too little, I feel that it is perfectly suitable. My TerraSeeds Tflow® Forex Trading Course works with individuals who are new to forex trading. Although many are white-collar and well heeled, some are risk-averse because they have never traded/invested in other markets at all. A 1-micro position size is small but the psychological hurdle involved for new traders is a big one. In my opinion, this psychology should be handled with care. Doing the right thing from the beginning creates a cycle of positive reinforcement and helps individuals to have a positive mindset. Setting on the wrong path creates fear and cultivates bad habits. How individuals handle small positions now affects how they handle large position sizes in future.

This is a very important topic which I will make this posting stick to the front page of the blog for a while. I am going to post updates and to ask participants to give feedback how they feel. Individuals who have encountered the same problem stated here I invite to log in and discuss your problems here as well.

 

Updated by Binni Ong 8 Sep 4.07pm

AUDSGD reached highest price 1.1781 on friday night, 2 days after the challenge. At 1.1781, we are 19 pips away from target profit, 106 pips in profit from entry.

Trade management is equally important as trade entry. At this moment, we have bullish day and weekly close, so it is prudent to shift stop loss to break even, that is, for this trade, if it should turn against us, there will be no losses.

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AUDSGD update; shift stop loss to break even

Let’s wait to see how this trade pan out, remember trade your plan. Right now this trade has been shifted to break even. Your psychology will even be stronger because if you were to lose, you lose zero dollar. This is a free trade!

I like to make positive impact to people and I’m glad I did.

 

 

Updated by Binni Ong on 10 Sep 2014 2.05pm

 

AUDSGD trade has been stopped out at break even. Price is now 1.1580.

This trade is a break even trade. We didn’t make any money from this. BUT we didn’t have any losses.

However, what you gained will be lots of positive psychology and reinforcement.

I hope you have benefited from it.

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6 thoughts on “80-pip AUDSGD Trading Psychology Challenge”

  1. Lakshman Kedarisetty says:

    Hello Binni, Nice way of introducing the psychology test to the beginners. I liked the challenge, missed out this challenge for not seeing the post in time & for not residing in Singapore.

  2. Teng Huwi Dominic Lio says:

    Although this audsgd trade didn’t pen out any profit and ended at breakeven, it gave me the experience of sitting through a trade without watching the trade constantly.
     
    The experience of “set and forget” is very important for me . I have to psychologically tell myself that I already know right from the start how much I will lose for this trade based on my trade size n stop loss determined before hand and I have to trust the entry n exit t-flow strategies which has constantly given profit to its students.
     
    I used to constantly stare (am still trying to curb) at the screen given my past job nature in the financial field, constantly adjusting stop loss to lock in or to exit any trade if there any sudden retracement erasing my profit ie constantly meddling the trade, not giving the trade enough space to work its way through till t/p or s/l. Because of that I was too involved and emotionally attached to my trades.
     
    Thanks Binni for coming up with the challenge. These audsgd experience worked very well for me through ecb meeting last week to be able to sit through and bag very good pips in eursgd, gbpcad, cadjpy, usdjpy and gbpusd.
     
    I wouldn’t say I have completely eliminated all the bad habits above, but am definitely “set and forget” more and moving a step closer being a successful trader.
     
    Thanks again Binni!

  3. Chia Jing Xing Victor says:

    Dear Binni,
     
    Would like to share my experience having taken this challenge. Having convinced that there was no possible lost, it seems easy to think that it would be easy to hold onto this trade. However, the real challenge for me personally occurred when I kept looking at the unrealized profit and the internal dialogue started.
     
    Questions like ‘is aud weakening now after observing aud weakening across aboard most currencies pair’ and ‘didn’t Binni said money in pocket is good so why not just go ahead to secure the money?’
     
    This challenge highlighted my weakness as a trader which is good because I now know what I need to work on. Definitely learn something from this experience and look forward to strengthening these psychology muscles through your lessons.
     
    Thanks Binni!

    1. Soh Tiong Hum says:

      Dear Victor, ‘didn’t Binni said money in pocket is good so why not just go ahead to secure the money?’ this is a very good question indeed. If a trader were to always close positions with small gains, he would never be able to reach a big one.

  4. Kong Chuan Simon Lim says:

    Dear Binni,

    Sorry for the late reply, thanks you once again for choosing me to be part of this challenge. Although this trade didn’t manage to make any profit but the BIG GAIN from the challenge strengthened me with Confidence and Conviction. I believed with Tflow strategies and all the training, I will be a successful trader one day.

    Thanks Binni !!

  5. Gayathri Nadarajan says:

    Hi Binni,
     
    I am glad to have been part of this challenge.
     
    As price was moving up, I was very conscious of all the box highs and S/R levels that might halt price. Usually, I will start taking profit because of the fear that price might be resisted. For example, at 1.16980, price was struggling a little. Even though it was only 20 pips above entry price, I was getting nervous. I tend to forget about the entire setup and validity of the trade when I see price struggling to clear a certain level.
     
    When price started to turn around, I wanted to close the trade. Better get some profit than none at all. But I held out because of this exercise. Even though this trade broke even, the practice of being confident in the trade setup and not to be afraid of the trade failing on me led to 4 other winning trades in a row; all with more pips than I have gotten before.
     
    Thank You.

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