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How to Avoid Impulsive Trades

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Impulsive trading concept

Happy Friday!

This week’s question comes from Tavi, who asks:

I have a habit of making impulsive trades that ruin my chance of turning a profit.

How can I fix this?

Impulsive trading is something that all Forex traders struggle with, some more than others. Even I make the occasional impulsive trade from time to time.

More often than not, those impulsive trades turn out to be losers.

That isn’t surprising, though, when you consider that an impulsive decision is one without a plan. The very definition of the word impulsive is “done without forethought”.

Not exactly a responsible way to conduct a business.

The good news is that there are a few simple ways to avoid these impulsive trades. Although the three methods below are simple by design, I think you’ll find them to be incredibly helpful.

Let’s do this!

1. Have a Plan

Forex trading planNot having a plan is perhaps the biggest contributor to impulsive trading.

With no plan at the start of each week, how will you know what to trade, let alone watch?

You won’t. That’s why it’s imperative that you spend some time each weekend reviewing your charts, drawing levels and constructing a plan for the week ahead.

Most of the pushback I hear on this topic has to do with not knowing where to begin. Or perhaps you’re unsure of how a plan should look.

The truth is, there is no one-size-fits-all answer. It depends on your style and preferences.

For me, I keep notes inside of an online trading journal. It’s the same platform that I provide to all new Daily Price Action members.

To be honest, most of what I plan to do each week is in my head. Whether you consider it a curse or a blessing, the currency pairs, key levels and potential setups I’m interested in are all memorized.

That doesn’t mean I don’t write everything down because I do. I enjoy having a written plan at the start of each week, even if it’s something as simple as a few annotated charts.

You can be as detailed or as brief as you’d like, just be sure to capture the essence of the plan. That includes writing the currency pairs and key levels you’re watching as well as any potential opportunities that may develop.

You can write it all down and include an annotated chart or just use an annotated chart to tell the story. The choice is yours.

My last piece of advice is to keep it simple. The more complex you make this process, the less likely you are to stick with it.

2. Stick to the Daily Time Frame

daily calendar representing daily time frameIt’s no secret that I love the daily time frame. After all, I named this website Daily Price Action for good reason.

One massive advantage to trading the daily charts is that it slows things down. You’re no longer forced to make quick—and often impulsive—decisions.

Because it takes 24 hours for each daily candle to form, you have plenty of time to assess the situation and make an informed decision.

That alone can be the difference between a well thought out trade and an impulsive one.

I do occasionally trade the 4-hour time frame as well, but even that is much slower than something like a 5-minute chart.

However, if you are just starting out or still struggling to make a profit, you may want to stick with the daily time frame and nothing else. In fact, that’s the recommendation I most commonly make to members.

I use New York close charts so that each 24-hour period closes at 5 pm EST.

Click here to get access to the same charts I use on this website.

I can’t tell you how many times someone has contacted me after switching to the daily charts to tell me that they finally found some success.

It’s also no coincidence that trading legends like Bill Lipschutz and Ed Seykota take a longer-term approach, using the daily and weekly time frames.

So if you want to slow things down and avoid impulsive trades, consider sticking to the daily and weekly charts.

3. Limit Screen Time

Woman spending too much time in front of computerIf you only take one thing away from today’s lesson, let it be this…

The more time you spend staring at your charts, the more you put yourself at risk of making impulsive trades.

You became a trader to trade, right? Of course, you did! So it’s only natural to want to find setups to put your capital to work.

This leaves you sitting in front of your computer searching for something to do, regardless of current market conditions.

If you want to take your trading to the next level, you have to start scanning for setups, not searching for them.

You see, when you sit in front of your screen searching for a trade to put on, you’re conditioning yourself to be unsatisfied until you’ve found one.

In other words, you feel like you have to put on a trade before you get up.

That’s a dangerous way to think.

I never sit down at my trading computer with the intent of doing something. In fact, I’d rather not do anything because then I know my trading capital is safe.

If I find something worthwhile when scanning my charts, I’ll take a second look. But I never spend more than 10 or 15 minutes looking through the 20 plus currency pairs I trade.

Now, for those just starting out with price action trading, it may take you a bit longer. Just be sure that you aren’t spending more than 30 minutes or so to scan your charts.

If you’re studying price action, that’s one thing. Take as much time as you need.

However, when reviewing your charts for opportunities, keep it brief and don’t go in with the intent of finding something.

Final Words

It’s all too easy to get caught up in the market’s movement. Instead of seeing the associated risk, you only see opportunities passing you by. That’s a dangerous way to view the market.

Unfortunately, it’s the view of most novice Forex traders. The good news is that there are a few simple ways to avoid taking those impulsive trades that get you in trouble.

The first way is to have a plan. Every weekend you should carve out some time to analyze your charts for the upcoming week. That way when the market opens, you know which currency pairs to keep an eye on and where to watch for price action signals.

By sticking to the daily time frame, you avoid the need to check in throughout the day. It also slows things down so you have plenty of time to assess the situation and make a decision. There’s no need to be impulsive when trading the daily charts.

The longer you sit staring at your charts, the more likely it is that you will make an impulsive decision. Spend no more than 20 or 30 minutes scanning your charts for setups each day. If nothing from your plan jumps out at you, come back tomorrow.

Remember that you only need one good trade each month to make a considerable return in this business. Allow opportunities to come to you and never chase a market. If you miss an entry, so be it. There’s another one just around the corner.

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Your Turn: Ask Justin Anything

I’d love for this new weekly Q&A to be successful and provide an invaluable repository of answers to common Forex questions.

To do that, I need your help.

Here’s what you can do to get involved and have your question answered in next week’s post:

  1. Ask questions. Post them in the comments below or Tweet them to me @JustinBennettFX
  2. Help me answer questions. If I missed something or if you have something to add, don’t hesitate to leave a comment below.
  • Olan+shawn says:

    What is daily and weekly close in new york session, the candle close or the price closeand if it’s price close, is it the buy or sell close price?

  • Olivia+phiri says:

    That’s some good advice thanx

    • Justin Bennett says:

      You’re welcome.

  • Fabrizio says:

    Hi Justin! Very interesting article! When you study the charts you take note only of key levels of support and resistance or also of levels for short term? That is, you consider only the key levels for forecast or also the other ones? Thank you and a nice weekend

  • Oseji says:

    O boy I love this, thank u man,am loaded

    • Justin Bennett says:

      You’re welcome. Glad to hear it. 🙂

  • Francis says:

    Good article there to always start your week with. Thanks a lot Mr Justin.

    • Justin Bennett says:

      You’re very welcome, Francis.

      • raima says:

        I failed many times following Daily chart, at 5 P.M. E.S.T, example if I find around a buy trade at 5p,m,- 7 p.m. and take buy trade, after few hours, that trade ill turn as a sell trade.
        so, to understand that daily candle whether it is a ‘BUY’ or ‘Sell’- which other candles, I need to watch to confirm the daily trade?
        pl. advise. I have been struggling with this for a while

  • Art says:

    Is the daily frame compatible or any useful to scalping and swing trading? Aren’t the 1 and 5 minutes frames best for scalpers and swing traders? I struggle with what kind of trading styles go with the different chart time frames.Can you help to clarify this? Thanks.

    • Roy says:

      You should stick with the daily timeframe if you are struggling to make a profit on a consistent basis.

      Justin wrote

      “However, if you are just starting out or still struggling to make a profit, you may want to stick with the daily time frame and nothing else. In fact, that’s the recommendation I most commonly make to members”.

      • Art says:

        Thanks Roy. I’m not struggling to make profits. In my 100 k demo account I’m making 6 to 7% monthly with 1 trade at a time 1 standard size sometimes 2, aiming at closing the same or next day. What I struggle with the most is to understand the daily time frame or even the hourly. For instance: using the daily chart should I aim at much larger TP targets (as compared to those in day TRADING) and obviously expect to wait lengthy periods of time (4 days? weeks?) to get there? Thank you.

        • Roy says:

          Yes. You your target should be more in general.

  • Nguyen+Dinh says:

    I’m a beginner. I spent hours on your site reading over and over again.
    please ask first thought when scanned through the chart? support and resistance levels, patterns, trends, ….?
    Please share it.
    Thank you!

    • Justin Bennett says:

      I share levels and patterns in the daily setups and weekly forecast sections of this site. See the top navigation.

  • Ahmad+Dahiru says:

    Thanks sir.

  • Latoya says:

    Hello Justin. What is a daily chart? How to switch to a daily chart? I am trading with a New York close broker. Thanks

    • Justin Bennett says:

      Latoya,

      That’s difficult to answer without knowing the platform you’re using. You should check with your broker, but there’s usually a clearly labeled button or drop-down within the trading platform.

  • Yusuf Ahmad says:

    Good one,very interesting.

  • Howard says:

    Never rush into a trade. By rushing, it’s guaranteed we’ll miss something important. Take time to go through your checklist of what constitutes a high probability trade, to see if this trade qualifies.

  • JANE says:

    When a bullish pin bar is formed, what is the the advice to take. Is it a buy or sell decision?

    • Justin Bennett says:

      If it’s a bullish pin bar, it should be a buy signal.

  • kiritsinh kher says:

    Hello sir,
    I want to know 20 pairs which you are trading, also want to know most liquid cross-currency pairs…..

  • Adi says:

    Sir, please let me know which thing to take along the trade I mean analysis or Market position ??

  • Mary says:

    Hi Justin,

    Thank you so much for this incredible information. I am also another person who is doing impulsive trading. I chase trades and I have realized my mistakes. I am so glad that I became a member of your block, it has thought me how to analyse a trade, I am able to see my mistakes and I am working on them.

    • Justin Bennett says:

      Hi Mary,

      Thanks for sharing! That’s great to hear that things are starting to turn around for you. Cheers!

  • Robert says:

    A very conclusive article to me. Thank you.

    • Justin Bennett says:

      You’re welcome.

  • Superior says:

    Good day,,
    1. What is the best strategy to trade gold and on what time frame.
    2. How do I recognize or detect a good price action

    • Justin Bennett says:

      It isn’t about what strategy is best to trade gold, but rather what strategy works best for you? That’s the question you need to answer.

      Feel free to browse the lessons and articles on this site; it’s all here.

  • Mattilight says:

    lovely, very well said. No doubt this is a forex academy that every inspiring trader who want to be successful jst lyk I, should try and graduate from. All we need is in this academy.
    Thks boss

  • Martin Felix says:

    Hi Justin,

    Thanks a lot for your excellent article, I am checking daily time frames for 2 months and that’s good to me.

    I liked so much:
    1-Create a plan, it is like to point in your radar what pairs are potential setups, really good, setups are going to you, not your head to setups

    2- I will try to limit screen time to new York close, it is difficult in case of boring work 🙂 this is not useful to avoid impulse trading haha

    Greetings from Spain

    Martin Felix

  • Rose says:

    Hi Justin,

    I just wanted to know how I can use New York close charts.
    How much does it cost ?

  • Patrick says:

    Hi.Justin
    Can you advise on how to determine the strength of a currency pair in the daily time frame.
    Thanks..

  • Eric Wilken says:

    Thanks, it will definitely help me to stop the impulsive trading.

  • Mustapha Abdulrasaq says:

    Hey Mr Justin,which time frame should we use as entry time frame? 1hour,4hours or daily time frame

  • Sithembiso Wiseman Zondi says:

    Can quarter’s theory work alongside your method of drawing support and resistance?

  • Mike Walker says:

    To evaluate trades you had under video categories post trade reviews and every one when signing up would expect this to take place.This would help new members to better understand trading much quicker.

  • Mukul says:

    How I will understand that, from which trade I will be able to make profit sir ?

  • Ajay says:

    Hi Justin
    Why is the New York close candles so significant ?
    Ajay

  • Kuhan says:

    Great advise as always Justin.

  • Furaha+Kaisi says:

    What are the good session to trade eurusd/Gbpusd, Eurjpy, Gbpjpy, Audusd usdjpy, Audjpy

  • Omo J says:

    You are the best Justin. Thanks

  • Tirelo Raditladi says:

    Am newbie want to learn forex.my question is for example if am trading GBP/JPY and the graph is going up.which currency is gaining value here.

  • EWEZU NGIM says:

    I want you to explain which Time Frame to draw your support and Resistance and Trend Lines while analyzing your Trades before you enter the Trade. Explain for all Time Frames.

  • PBMathews says:

    Hi Justin, couldnt agree more on your third point. From personal experience, it is the biggest instigator for impulsive decisions.
    A very good article. Thanks

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