The need to be right

When a trade fails and the market moves against the trader, she may continue to re-enter in the same direction over and over again. At the end of the day, the trader may realize she has been shorting all the way to the top, usually unsuccessfully on a strong bull day. Similarly, some traders will buy every drop on a bear day, assuming that "it should turn anytime now".

Being married to the bias is a common failing. The trader insists he knows better than the market and it should turn and go in his direction anytime soon. The failing to recognize that the market is always right and the trader is always wrong is a fundamental error that can be the difference between one bad trade and a series of bad trades. Such a mindset is also liable to encourage the trader to add-on to a losing position because every failed entry results in a much better price if the price is going to reverse anyway.

A simple but hard way to deal with this is to not have bias. This means ignoring news, TV, economic and political analysis such as why the market should go down because of the misdeeds of politicians, why Europe is doomed or pretty much anything else since news is sensation-driven and does not reflect immediate demand and supply.

Even if you do have bias, if the trade goes against you for a large number of points, you should not enter in the same direction until there was an obvious trendline break and test of extreme.

Most important, do not be shocked that your trade has failed. No one can be right all the time. Keep your loss small by taking an early loss and sit out for a couple of bars if you need to clear your mind. Taking a step back and looking at the overall chart or a higher timeframe will often reset your bias and allow you to recognize trendlines and enter with-trend or sit out of choppy moves.