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
Concentrate On the Trade
It’s important to focus on the trade when you’re trading the markets. You cannot allow your focus to waver. You cannot act rashly and make a mistake. But we frequently become sidetracked, and when we do, we behave hastily and make mistakes.
Studies have demonstrated that people struggle to resist temptation when their psychological resources are fully strained. When playing games of chance, for instance, individuals are more inclined to choose an immediate, smaller payoff than waiting for a larger one. It’s as if your subconscious mind is telling you to hurry up, take what you can get, and avoid waiting.
It’s crucial to pay attention right now rather than allowing oneself to become sidetracked. Keep your attention on the trading procedure right now. Your chances of achieving “the zone,” a high performance mental state when everything seems to come together smoothly, rise when you are fully immersed in trading and focused on your ongoing experience. You are not preoccupied with past blunders or projected gains when you are in this top performance mental state. Your whole focus and effort are on the current trade. Your instincts are more in tune with you. You have a clearer view of the markets and are acutely conscious of your emotions, sensibilities, and judgments.
Throughout the trading day, you may not always need to be fully concentrated on your transactions, but there are some moments when it is crucial. It’s critical to trade effectively and make quick decisions during these moments. You cannot flinch. You are not allowed to think twice or make a mistake. For instance, you must be prepared to focus all of your mental concentration on the trade at the time you enter or quit it. Don’t disregard it. It’s simple to become sidetracked and make a trading mistake.
How can you enhance the likelihood that you will adopt a focused, peak performance mindset? First, increase the likelihood that you’ll be awake and focused. Don’t trade while you’re famished or worn out. Although it might not be apparent, you could feel a little on edge and find it harder to focus when you are sleepy or hungry. There are limitations to the mind; no one has a limitless amount of psychic resources. You don’t have many resources left when you’re hungry or exhausted to completely focus.
Don’t undervalue the impact of background stress, second. Family issues, unfinished chores, and other tensions that lurk in the background of your mind may sap psychological reserves without you even realising it. Reduce your stress levels as much as you can. Third, trading modestly can be beneficial. As you silently fret about what you will do if you lose money that you just cannot afford to lose, it becomes easier to lose focus the more you risk. In sometimes subtle ways, risk management frees up psychological resources. It’s just one more approach to ease mental stress and enable more creative and unrestricted trading.
It’s important to maintain your attention on the trade you have placed. You must be ready to quickly take action to protect yourself when you can clearly see the signals that the market is moving against you. However, you could become distracted if you’re exhausted or under stress. You can struggle to manage your trades, carry out your trading plan with ease, or leave at the ideal moment. Make sure your head is in peak mental form by taking measures. Your chances of trading successfully rise when you are well-rested, unburdened, and prepared for the market action.