Why are trades usually followed by losses?

I don't know if you have the feeling that after you have made a few profits or several consecutive profits, you will return the profits to the market soon after, or even more. I don't know about your situation, but I was in this situation more than once in my early trading career, so I know the frustrating feeling well.

In my opinion, regardless of the reasons why you give profits back to the market time and time again, they all have one characteristic in common: recency effect.

The recency effect is a psychological phenomenon in which recent events are easier to remember than events that have occurred in the past. This may be human instinct, but as traders, if we will, we need to understand the profound impact of recency on trading.

When traders become overly focused on their most recent trading results, it can cause them to lose focus and perspective. In trading, it is easy to be overly influenced by the results of the last few transactions, which is one of the reasons why we tend to do all kinds of stupid things.

# Overconfidence

When we are overly influenced by recent transactions, we often have "false confidence" performance. When you make a profitable order, you will have an imperceptible impulse to enter the market without reliable trading signals.

For example, a novice trader may be lucky and start out doing well, "three in a row", although sometimes they may not know what they are doing. At that time, the market was in a very strong trend and it seemed extremely easy to take profits. However, then the market conditions changed, but the trader just continued to trade and did not adjust his trading strategy with the market changes, because he felt very confident that he had just made "easy money".

False confidence can make you think that you are smarter than before, and your trading skills are better than others. When a novice trader makes a profit on one or several orders, he usually looks at the chart roughly, and then re-enters the market with the mood of continuing to make a fortune. The whole process is like a subconscious behavior.

Misguided self-confidence, even indulging in the excitement after making profits, coupled with the lack of necessary observation and understanding of the market, as well as trading skills, will eventually lead him to the "road of destruction" in trading. This situation is so common that almost every trader encounters it at some point.

Remember, overcoming the "recency effect" and deluded confidence is the key, and thinking about probabilities is the key to lasting trading success. In other words, in an uncertain market, we trade probabilities.

Before we enter the market again, we must keep calm. Mature traders should know that the transaction cannot always be profitable, and there will always be losses. After all, losses are part of the transaction. Sometimes you have made several profitable orders in a row, which only shows that the trading strategy is very useful under the circumstances at that time, but it does not mean that your strategy is applicable to any situation.

# Solution

In trading, what is more important to traders than profit? If you have $500 in cash and another trader comes up to you and tries to take it from you, you might slap him a few times. However, when you don’t know who “takes” $500 from your transaction on MT4 or other trading platforms, you just shrug your shoulders or give a wry smile, feel a little frustrated about the transaction loss, and may even trade impulsively. Another $500 loss.

At this time, I wonder if you have not seen the problem?

My solution is, if you trade every month, even if there is a profit of $10, withdraw it and withdraw it from the ATM or bank counter. Keep this cash on your trading desk, or in a piggy bank, so it's within easy reach. After that, take it out once a week, play with it for a while, smell it and so on. You have to realize that this is real money, hard-earned money, and you really don't want to lose it! Now, trade on that feeling. In other words, trade defensively in order to protect your trading capital, because that is what you need to survive and ultimately succeed in trading.

Therefore, you need to establish a complete trading plan, rather than trading casually. The following small suggestions may help you avoid excessive trading behavior after making a profit:

establish your own trading strategy or trading system; establish your own trading
rules and plans based on the trading strategy;
Trading advantage;
your trading discipline should be able to "filter" out the "dopamine trap", so as to ensure that you do not trade randomly or over trade.

# Summary

If this profit taking spirals out of control, it can lead to a lot of wrong trades and eventually blow up your account.

Also, you need to avoid the "dopamine trap". The massive release of dopamine will weaken your risk awareness, make you unable to calmly think and judge, and will eventually make you abandon your trading principles and trading strategies, and trade blindly and excessively. The best way to avoid the "dopamine trap" is to make sure every trade you make is well thought out. When you already have your own trading strategy, you must establish your own trading rules or trading plans and strictly implement them.