Most people who are new to the forex markets make lots of mistakes when they first start to trade. They trade without a plan, they trade the wrong markets, at the wrong times and they often put too much or too little risk on any one trade.
Once a trader has gotten over these basic mistakes there are some, smaller errors that can creep up and eventually lead to meltdown. Trading your P&L is one error that can lead to excessive gambling and stress.
What is trading the P&L?
Trading the P&L basically refers to trading the forex markets by watching the profit & loss statement of your account and not the market. All trading platform show the P&L on screen and it can be a very distracting influence, particularly to beginners.
Trading the P&L can be a big problem because it forces you to look only at your results and not the real goings on in the market.
Profits in the forex market can come just as easily from luck as skill so it is never a good idea to base your decisions on your P&L.
Excessive gambling
The danger with watching your P&L is that it encourages gambling in the market. If you constantly watch your account to see how much you are winning or losing, then you are, in reality, unconcerned about market moves, and you are principally concerned with making money.
The problem is that watching your P&L will cause your emotional senses and your stress levels to rise. You will begin to threat and sweat over every small movement in your account, preferring to see your account up just $10 than to see it down $-100. That’s not a good way to approach trading because successful trading requires a risk:reward ratio that is skewed the other way. In other words, your winning trades should make more money than your losing trades.
Watching the P&L encourages overtrading, it causes you to stress over unimportant changes in your equity and will result in the derailing of your strategy.
What to do
The solution to not trading your P&L is simple, but surprisingly difficult to do. Simply not looking at your P&L is the only way you can avoid being affected by its second by second gyrations.
But it is not easy and you will get the urge to look at it over and over again. You can try hiding the P&L under another window but that alone probably won’t stop you. You can try timing yourself, seeing how long you can go without looking at it or you could try and automate the whole process completely, so you don’t even have to look at your screen at all.
The only real solution to ignoring your P&L whilst trading comes with time and confidence.
