Psychology and Risk Management
• What to expect
• Risks
• Position sizing
• illusion of control
• Accepting critisism
• Paralyzed by fear
• Loss is a feedback, not a failure
• The flexible trader
• Focusing on the positive
• Short straddle
• The dynamics of greed
• The herd mentality
• Notes
1. Accepting Criticism.
The drive to be correct is a common trait among new traders. Because of how strong this innate human propensity is, inexperienced traders make poor trading decisions in an effort to avoid having to accept that they are mistaken. For example, they might continue holding onto a lost trade in order to record losses. In an effort to Accepting Criticism, avoid dealing with the repercussions of a poor trading concept, they could delay or postpone completing a trade. A compulsion to be correct can be oppressive in many ways. A trader who has to be right may hold back during crucial times in the middle of a trade rather than feeling free and innovative.
Why is it so difficult to receive feedback, whether it comes from a person or the markets? The fact that we connect criticism with emotions of inadequacy is one of the key causes. We have a tendency to attach a lot of psychological weight to any form of negative feedback or criticism. It feels like our parents or professors are chastising us for acting immorally. But this is erroneously assumed. Criticism need not be motivated by feelings. It’s important to accept criticism and feedback kindly. It’s just feedback; it’s not personal. You can use this knowledge to better your trading skills if you can learn to downplay its emotional value and see it as cold, objective data.
We have an illogical drive to be perfect, which is another reason why it’s challenging to accept criticism. We frequently believe that if we are not always correct, we will not succeed. This notion is something we pick up in school. We were typically only given one opportunity to submit a term paper or take a test in school. You can’t learn to polish your talents in most educational settings since you can’t repeat tests or write term papers. This mentality is one that many people bring to trading. But it’s not necessary that it do. You can make a transaction, learn from your mistakes, and make another trade if you do little practise trades, for instance.
There is no justification for refusing to take criticism. In fact, you should look for success in trading, either by placing trades and watching what happens or talking to a trading coach. The more knowledge you acquire about yourself, the more likely it is that you can improve your abilities. So, seek out feedback. Accept your limitations without fear. You’ll develop your abilities to the point where you can trade the markets profitably and skillfully if you can endure all the criticism you can discover.