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How to Overcome Problems with Following Your Day Trading Plan

A good, tested trading plan sets out market patterns that work often enough that you can make good trading profits. But some people have trouble following their plan, and that leads to stressful mistakes. Following are some common problems and advice on how you can avoid — or overcome — them.

Prevent choking while day trading

In sports lingo, an athlete who chokes starts playing so carefully that he or she looks like a beginner. Choking is often caused by over-thinking — by being so afraid of failure that the mind slows down and breaks the play down step by step. Watching a contender break down in a championship game isn’t pretty. The fans want to see a good match.

Anyone in a high-performance situation can choke. When a trader chokes, he seems to be following the plan, but it’s no longer automatic. Trading becomes so slow and deliberative that obvious trades get missed.

The more you trust your plan, the less likely you are to choke. Has it been tested? Are there parts that you can automate?

Reduce stock market panic

Panic occurs when you just stop thinking. Your most basic survival instincts take over, even when they are totally uncalled for.

You’re losing money? You start to trade more and more, off-plan, in a desperate gamble to win it back.

You’re making money? You close out all your trades right now so that you can’t possibly lose, even if your plan tells you to hold your positions. When you panic, you can’t think straight, and you can’t follow your plan.

When your positions are down and you seem to be losing money, you really should be buying and sticking it out so that you can make money later. The problem is that your panicked instincts are telling you to do the opposite. Following through on your plan rather than knuckling under to your instincts is tough to do and requires a lot of discipline. With experience, traders learn to avoid panic.

You’re probably going to have more than a few losing trades when you get started. In your trading diary, keep notes about how losing money makes you feel. Can you handle it emotionally? If losing upsets you too much, you may not be cut out for day trading. You can’t trade with a clear head if you’re bogged down with negative thoughts.

Nurture your confidence, not your ego

Day trading requires a lot of confidence because you are going to lose money and you are going to get beaten up some days. You not only have to remain confident in the face of adversity, but you also have to be careful that you do not cross from confidence into an inflated ego.

The more your trading success and failure become part of your personal identity, the more trouble you are going to have.

What’s the difference between confidence and ego? A confident person would say, “I’m smart enough to figure out what the market is telling me”; an egotistical person, “I’m smarter than the market.” The difference is crucial to your success.

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