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
We typically determine our level of motivation by the goals we establish. Robert Koppel (2000) makes the following claim in his book, “The Mentally Tough Online Trader”: “Setting goals is vital for the trader to boost motivation and optimise performance. Goals should be realisable within a set time frame, practical, measurable, and under the person’s control. High-level goals are a sign of success, but if you set your sights too high, you’ll probably fail a lot of the time. Additionally, persistent failure can make you want to give up by harming your ego. Finding the sweet spot between being overly ambitious and being too modest when making objectives is the key.
It’s crucial for your emotional health to have reasonable expectations while making goals. For instance, many new traders fail when they attempt to transform a little investment into a large sum of money. Trading with insufficient funds won’t be able to pay for drawdowns, fees, or commissions. Also trading above their ability level are new traders. They could employ risky trading techniques and anticipate a reward even when changing market circumstances render their strategies ineffective. It’s challenging to accomplish irrational aims. It causes a lot of tension, and stress can lead to mistakes in trading. Setting more reasonable expectations reduces pressure and aids in the development of solid trading techniques. You experience a sense of satisfaction as you accomplish each goal.
A common misconception among new traders is how long it takes to build a profitable business. For instance, many believe they can trade profitably in a matter of months, when experienced traders stress that such consistently lucrative trading may take several years. And achieving it is difficult. Yet many inexperienced traders believe that only a modest amount of work is required. For instance, individuals could believe that treating trading more like a pastime than a professional business will allow them to trade profitably. They overestimate how competent they are. They have an overly confident belief in their own abilities and skills, which they do not yet possess. Never underestimate a person’s propensity for arrogance.
It’s crucial to create explicit goals in addition to attainable ones. A common error is to set ill-defined, non-specific goals. Setting concrete objectives and rewarding yourself as you advance is beneficial. Profits do not have to be the primary focus of goals. You might wish to start by establishing objectives for skill improvement. You can choose to read one new trading book a week or spend three hours a day studying charts. Naturally, you’ll experience a sense of accomplishment as you accomplish each goal and mark your progress.
You can gradually set higher and higher goals as your skills advance. Though initially slow, you will eventually make great progress. Avoiding attempting to do too much is crucial. Move slowly. Work on your own schedule, and at your own pace. Not to be a competition. You are the only one you need to appease. You’ll master the markets and achieve long-term financial success if you create goals that are reasonable and work diligently to meet them.