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
Reality is arbitrary. In the same way that there are various mental or emotional states, there are several states of reality. For instance, the outlook for the future can be dim after a string of failures. On the other hand, you might feel joyful and even omnipotent following a string of significant victories. Which then is the real reality? Answering this question is challenging. It can be useful to think about different realities, some of which are more suited to optimal trading than others.
Making money is a necessary reality. Your account will lose all of its value if you don’t make enough profitable trades. Even though this is a truth of trading, pressuring yourself to make a transaction after a winning deal can really cause you to pass out from stress. It is advisable to forget about this truth while trading the markets. The more you can avoid concentrating on your past performance and keep your attention on your present experience, the better. The better you trade, the more carefree you get.
But you must mentally distance yourself from everything if you want to switch to a peak performance attitude. You must allow your thoughts to unwind. Slowing down your thinking is necessary. You must occasionally step away from the trading industry’s competitive environment. Everyone has their own strategy. Some people meditate. Others exercise in the gym until they have exhausted all of their pent-up energy and are completely relaxed. Additionally, a lot of folks get massages to unwind physically. The secret is to force your mind to switch to a different world by shaking it.
Here’s a technique that can really jolt your head in the right way. You can spend two minutes submerging your body in warm water (hot but not boiling, ideally at a professionally run spa), after which you can plunge into a pool of cold water. All your thoughts are focused on adjusting to the heat when you submerge your body in a hot pool of water. It hurts a little, so you have to keep your focus to keep from springing out. It helps you concentrate on it. Actually, all you can think about is how you’re going to deal with the immense heat around your body. You soon start to feel meditative.
You’re at ease and a little disoriented. Repeat the procedure several times to achieve complete relaxation. You’ll be in a brand-new world. Adapting to this new reality can be a revitalising experience psychologically.
You’ll view things objectively. You’ll realise that your trading endeavours and the high standards you strive for are just one part of who you are. Having this insight might be comforting after a hard trading day. You’ll keep in mind that despite the pandemonium, there are alternative realities. But more significantly, you’ll feel at ease and reenergized to take on the strains and tensions of the markets.
Inherently stressful is trading. Even if we attempt to prevent it, when it comes to money, our ego is frequently on the line. It’s vital to mentally disconnect from everything. Whether it’s through meditation, physical activity, or a trip to a tropical island, it’s important to change your reality, get some rest, and recharge.