Trading is like running a business and anyone who has run a business successfully will tell you that emotions should have little place in your decision making. Although because of money and your natural instincts, many people cannot remove their emotions from their trading, sufficiently.
Why does a psychologist who has spent his entire professional life counselling traders of all experience levels say that so much of your trading hinges on your psychology?The key is that your mind drives everything you do in your life and trading is no exception. Your emotions are a part of who you are and your decision making process. Decision making is a large part of trading, as you need to make decisions often and many of them are difficult decisions. Furthermore, people like to break rules, even ones they set themselves. There are some simple trading rules that have stood the test of time, and will always work yet most people cannot follow them. It is essential that you realise how important it is that you demand of yourself the highest level of discipline to ensure you implement the requirements of your trading plan ruthlessly and follow some of the time tested trading rules.
Trading is like running a business and anyone who has run a business successfully will tell you that emotions should have little place in your decision making. Although because of money and your natural instincts, many people cannot remove their emotions from their trading, sufficiently. Books like ‘Market Wizards’ by Jack Schwager and other similar texts illustrate how successful traders have found a trading methodology that they are very comfortable with. None of them have found any magic solution to trading but they all clearly possess an inner confidence in their own ability to follow rules and their own trading plan. To develop a solid trading plan requires commitment and discipline, but more importantly time to sit down and work through it methodically. At the end of the day, if you are not comfortable with the way you approach the market, then you will likely drift away from your plan and fall into bad habits. In this situation, it is highly probable that you will lose money.
If you want to trade well and therefore develop a trading plan and follow it, you need to convince yourself that it is something you really want to do. Commit to it and there really shouldn’t be anything stopping you developing a robust trading plan that will over the long run be profitable. Do you have a trading plan? Have you fully committed yourself to following it? Remember that in trading, if you fail to plan, you are in fact planning to fail.
Why Break the Trading Rules?
Money is something that affects people’s emotions and your natural instincts with money will often encourage you to break some of the time tested risk management rules, for example ‘cutting your losses’ and ‘keeping your trades small’. Most traders focus on making money and realising a loss goes against the aim of making money.
Performance Monitoring
It is well accepted that this is a characteristic of the best traders in the world. They have a passion for their trading and will often and periodically review all of the trades that they have conducted including all the profitable and losing trades, and learn from them.
Be Realistic
Having high expectations of yourself is a good thing however, unrealistic expectations is not. Many traders when presented with the wonderful opportunities that the market offers can be very easily led to setting unrealistic goals for their trading. This can be devastating.
