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Dr. Doug: Avoid Premature Trading

Video: Market Coach Doug Hirschhorn discusses how traders can avoid the natural impulses to trade too early or to hold on too long.

In uncertain markets, it can be easy for a trader to lose both focus and discipline. Here’s a recent e-mail I received from a currency trader.

“Dr. Doug: I made the critical mistake, this week, of turning my long-term bearish thesis about instability in Europe and the falling Euro into a short-term trade. I was so afraid to miss out on the big move that I started shorting the rally and got squeezed out near the top. Now the Euro’s falling out of bed and I’m sick to my stomach thinking about what could have been. Please help me get my head back in the game. Signed, Premature Trader.”

Well, here’s the deal: You need to slow down and accept that many times, the best trade is no trade. Most traders naturally fear that if they don’t participate right now, they’ll miss that big move and regret it. The irony is that by jumping in and going against your game plan, you could actually end up missing out on the same money making opportunity.

The solution is simple. Stop trying to be perfect. Great trading is not about perfection, it’s about probabilities. If you go to a restaurant and order a steak, you don’t need to eat the bone, gristle and fat to enjoy the steak. And you don’t need to sell the top or buy the bottom to make a killing in the market. Just look for the sweet spot and dig into that. If you leave some profits on the table, that’s ok. You’re still going to leave the table feeling confident, in control and with a full stomach.

Learn the lesson this time so you avoid this common trading mistake in the future.

Think better, invest smarter.

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Doug Hirschhorn is the chief executive officer of Edge Consulting, a firm specializing in “Peak Performance Coaching.” He holds a Ph.D. in Psychology with a specialization in sport psychology, and has offices in New York and South Florida. His client list includes elite athletes as well as many of the largest banks, hedge funds and financial institutions in the world. Doug's new book, 8 Ways to Great (Putnam, 2009) is currently available on Amazon.com for $19.95.

Have a question for Doug? You can reach him through his Web site, DrDoug.com

Disclaimer: Doug Hirschhorn's expertise is in the psychology of achieving peak performance. He is not a financial advisor and does not make trading or investment recommendations or provide trading or investment advice. He is an expert on the mental game. Although Doug Hirschhorn has a Ph.D. in Psychology with a specialization in sport psychology, he is not a licensed psychologist and does not provide therapeutic, clinical or counseling services.