Three stages of a trading day: When strategy meets psychology.

Trading is a never-ending battle, a battle with the markets and perhaps even more importantly, a battle with yourself. Placing a trade is often viewed as a single event, you look at a chart, find an opportunity, enter a trade and wait to see what happens. But I believe this misses something important, the actual process of placing a trade can be broken down into three distinct phases, in each phase you must control your analysis and very importantly, your psychology. 1. Pre-trade — prepare the decision 2. Attempt to trade — make the decision 3. Post-trade — release the decision Perhaps the most important aspect is to be aware of how you are feeling during each phase. The key isn't to eliminate these feelings, it is to be aware of emotions but not act on them. 1. Pre-trade: Prepare the decision The first phase begins before you even look at a chart. The objective isn't to find a trade, The objective is to understand your strategy well enough to know whether there is potentially a trade at all, my strategy is based on understanding the underlying fundamentals of the market but regardless of the strategy you use, there is a certain amount of knowledge required before you start.

It's a little different for every trader, if you're a technical trader, you might need to know recent pivot points, trends or Fibonacci. As a fundamental trader, before I look at a chart, I need to know: What is happening with the risk environment? What are the latest inflation and employment numbers? What are central banks saying? How are interest-rate expectations changing? Are there upcoming geopolitical events or data releases that could change the narrative? Ultimately, I have a clear picture of the market's story before I even look at a chart.

This is important because looking at a chart first can create a temptation to find something to trade but before opening the chart, I already have a reasonably clear idea if there will be an opportunity or not. ‘Strategy preparation’ is only half the battle, some might say the real work begins with psychological preparation. The mental state: Pre-trade preparation isn't only about the market. It is also about me.

Am I in the right mental state to trade? Am I calm? Am I present? Am I trying to make back a previous loss? Am I bored and looking for something to do? Am I anxious about missing an opportunity? Am I desperate to make money today? These questions matter because the same market can produce very different decisions depending on the mental state of the person looking at it. There is another important consideration: What are my actual long-term profit expectations? Trading isn't about making money every day or even every week. There will be losing trades. There will be periods where nothing happens. There will be periods where the market doesn't offer a clear opportunity. And it isn't about making a fortune quickly. If I have unrealistic expectations about how much money I should be making, I create pressure to trade. The objective isn't to force the market to produce a return today. The objective is to forget about the outcome and to consistently make what I believe to be the best decision at that moment. That is the mindset I want to take into the second phase.

2. Attempt to trade: Make the decision & Act on it. Now comes the difficult part, I don't mean difficult because trading is hard, which it is. But, some decisions are quite simple. I mean difficult because implementing a decision in the heat of the moment is what separates the consistent from the inconsistent. Knowing what you should do is not that easy to act on when a chart is moving fast and there is money to be made. All of a sudden, emotions appear. Emotions lead to urges and acting on urges causes blow accounts. Impatience, excitement, anxiety, fomo, the list of potential emotions is endless. I might want to enter because I'm afraid the opportunity will disappear. I might want to move a stop because I don't want to accept being wrong. I might avoid a perfectly good trade because I'm afraid of losing. Or I might take a trade that doesn't meet my criteria simply because I have been watching the market for two hours and feel that I need to do something. The answer isn't to eliminate these emotions,.The answer is to notice them without acting on them. I can feel anxiety without acting on anxiety. I can feel FOMO without following it. I can feel boredom without allowing boredom to make the decision. This is where being aware of your emotions becomes so important. Being aware of your emotions and not acting on them is the most important part of phase 2. Being aware of your emotions but acting on what you believe to be the right thing to do according to your strategy is the goal. Instead of chasing an outcome, I focus my mind on the only thing that matters: What is the best decision I can make right now, given the information available to me? Not the perfect decision, not the decision that guarantees a winning trade. Simply the best decision available to me at that moment. Sometimes that decision is to trade. Sometimes it's not to trade, both are decisions. The outcome is not yet known, my job isn't to control the outcome. My only job is to control the quality of the decision. The point in trying to get across is that, although the strategy is important, there are many strategies you can use to beat the market. But they are all useless if you can't control your own emotions. Phase 2 of your trading day is all about understanding your emotions and realising you don't have to act on them. Ultimately bringing your focus back to the only thing that matters, making and acting on a good decision based on your strategy. 3. Post-trade: Release the decision This is the phase that is often overlooked but I think many accounts have been blown by meddling after a decision has been made. The decision has been made. Perhaps I entered a trade. Perhaps I decided not to trade. Either way, the decision now belongs in the past.This creates a new psychological challenge: It was a decision made with the information I had at the time but can I let it go? If I enter a trade, there can be an almost irresistible urge to check it. The problem being, you want a certain outcome, you don't know what that outcome is yet and your brain can't handle the uncertainty. Is the trade winning? Is it losing? Every time you check, each pip movement induces emotion. The market suddenly becomes something I feel I need to monitor constantly. But checking the trade doesn't improve the decision, it doesn't validate your idea, it simply gives your emotions an opportunity to interfere. I decided that the trade was valid at the time I entered it, I now need to allow that decision to exist without constantly reassessing it based on every small movement in price. The same applies to a decision not to trade. Did I miss the move? Would I have made money? Should I have entered? The mind wants to go back and rewrite the decision with information that wasn't available when it was made. But that isn't how trading works. We make decisions in a moment and the market carries on regardless. Once our decision has been made, all we can do is wait for the market to show us the outcome. My job is not to keep mentally reopening the decision. My job is to ‘release the decision once it's been made’, that's the crux of stage 3. I'll leave you with some thoughts to carry with you as you go about your trading day: Pre trade: I gather enough information to feel confident enough to make a decision. I'm calm and I have realistic expectations. Attempting to trade: I recognise that my emotions are causing urges. I don't act on these feelings. I return my mind to the only thing that matters, which is to make a good decision according to my strategy. Post trade: I recognise that my emotions are now sending different urges, I don't need to check, in fact, checking risks long term damage to my account. The decision has been made, I now need to accept a period of uncertainty until the market shows me the outcome. And by using a higher risk reward ratio per trade, we can be confident that over the long term, the outcome will be consistent profits. I hope you found this useful, please feel free to get in thouch with any thoughts or questions: johnelfedforexblog@gmail.com