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
Any seasoned trader will tell you that developing novel, creative trading ideas is the key to long-term profitability. Finding winning tactics is challenging. And then, after all the bother of creating a successful trading strategy, it abruptly fails. Finding fresh tactics and possibilities is essential to staying ahead of the competition; else, your overall revenues will noticeably fall. Here is a fundamental three-stage approach for coming up with and evaluating fresh ideas: brainstorming, planning, and arguing against the evidence.
The objective of the brainstorming step is to generate as many fresh trading strategy concepts as you can. Be honest with yourself and let your thoughts flow. Don’t be reluctant. There is no such thing as a stupid concept, so live by that maxim. Consider the actions you would take if anything were feasible. The aim at this point is to generate as many ideas as you can, even if some of them are implausible. Avoid placing restrictions on yourself. You risk preventing an original thought from entering your consciousness if you suppress your creative urges.
The objective of the planning step is to improve your possibly creative concept. It’s time to transform your concept from a hazy notion into a specific strategy. Consider how you will carry out the strategy and make an effort to iron out all the details. Think imaginatively, yet realistically. What practical steps can you take to put your idea into practise? What omens or clues point to the ideal market circumstances for putting your proposal into practise? What is a reasonable profit goal for your concept? How do you plan to reduce your risk? What is your plan of action? The strategy will be easier to follow if it is more comprehensive. It will also be simpler for you to gauge its prospective profitability.
You must take the devil’s advocate role in the last phase. You’ve described a workable idea, now it’s time to think about what’s wrong with it. This is a crucial phase. It has been claimed that brilliant trend-setters are those who can tell the difference between a truly original concept and a wishful thinking. It’s essential to have a critical eye. At this point, it’s helpful to think that the majority of trade concepts are “poor ideas,” and that you must consider every scenario in which your plan might go awry. Even the most rationally sound proposition can fall short on the market. What evidence do you have that your plan will be successful? What presumptions did you use to formulate your plan? Are they logical? What could possibly go wrong?
Losses can be avoided with a skeptic’s mindset, thus it’s crucial to identify every mistake and either fix the strategy or abandon it.
You may create cutting-edge trading methods that will keep you profitable in constantly shifting market conditions by using this three-stage technique of brainstorming, planning, and critiquing.