The psychological aspect of trading is usually underestimated by those new to trading. The psychological problem for most traders is the fear of losing - ironically it is this fear that causes most traders to lose money in the long run. The fear of losing can manifest itself in a number of ways:
Unable to pull the trigger and enter a trade. A trader can start to lose faith in a system that has produced a number of consecutive losing trades and might start to look for further confirmation before taking the next trade. Inevitably the trade that is not taken will be the winner. The point of a mechanical trading system is that it forces the trader to take the trades that they wouldn't normally take just by looking at a chart.
Unwilling to accept a losing trade and cut a losing position short. Losing trades are an inevitable part of trading, many successful systems will produce more than 50% losing trades. The key is to never marry a position - if it hits your stop loss then exit it. Preserve your capital for the next trade.
Taking a profit too early to prevent a winning position become a losing one.
There are a number of ways to counteract the fear of losing:
Have a plan. Never enter a trade on a hunch, tip or gut feeling. Always know your exit before you enter a trade.
Discipline. Developing your own trading plan that you believe in will make it much easier to follow than trying to trade someone else's.
Money Management. If a position is too large for your account size then you are more likely to hang on to the losers or cut the winners short. Each trade is merely one step along a very long journey. Strict money management rules should ensure that you never stake more than you are comfortable with.
Ignore the money. Don't view your trading account as money, view it as points. The better your trading plan and your execution the more points you will accumulate as a reward. It is difficult to trade objectively if all you can think of is that your last losing trade could have paid for a two week holiday or bought you the latest camcorder!
Unable to pull the trigger and enter a trade. A trader can start to lose faith in a system that has produced a number of consecutive losing trades and might start to look for further confirmation before taking the next trade. Inevitably the trade that is not taken will be the winner. The point of a mechanical trading system is that it forces the trader to take the trades that they wouldn't normally take just by looking at a chart.
Unwilling to accept a losing trade and cut a losing position short. Losing trades are an inevitable part of trading, many successful systems will produce more than 50% losing trades. The key is to never marry a position - if it hits your stop loss then exit it. Preserve your capital for the next trade.
Taking a profit too early to prevent a winning position become a losing one.
There are a number of ways to counteract the fear of losing:
Have a plan. Never enter a trade on a hunch, tip or gut feeling. Always know your exit before you enter a trade.
Discipline. Developing your own trading plan that you believe in will make it much easier to follow than trying to trade someone else's.
Money Management. If a position is too large for your account size then you are more likely to hang on to the losers or cut the winners short. Each trade is merely one step along a very long journey. Strict money management rules should ensure that you never stake more than you are comfortable with.
Ignore the money. Don't view your trading account as money, view it as points. The better your trading plan and your execution the more points you will accumulate as a reward. It is difficult to trade objectively if all you can think of is that your last losing trade could have paid for a two week holiday or bought you the latest camcorder!
3 comments:
"The fear of losing money is the reason most traders lose money". Well put!!
Best Affiliate Forex platform
The easiest and quickest way to lump sum earning, is through Forex trading. Today Forex is the biggest market on earth with a daily turnover of a trillion dollars. Anyone can earn huge income easily by trading Forex online. Referforex.com is an easy to use and highly lucrative Forex affiliate program which provides you the platform to earn thousands of dollars per affiliate. When you refer traders to register, deposit and trade with us, you EARN a commission on each deposit!
Our affiliate program gives you the option to choose which commission structure suits you best. Our extremely attractive package offers 10% from each active trader’s deposit, 1 pip from each trade placed, and $50 per deposit. Just sign up and register and place yourself on your desired commission structure.
By becoming an affiliate of Referforex.com you can have access to our marketing materials, 24 hr customer service and our superior web-based trading platform. You can even speak to our dedicated and experienced Affiliate Manager who can provide you one-one personal training to get you up and running.
Sign up and register and enjoy our wide payment options!
Regards,
Finexo
Finexogilad@gmail.com
Great article!
Post a Comment