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
A Powerful Emotion
When trading the markets, one frequently experiences actual harm: If a trade costs you a lot of money and it fails, you lose everything. Regrets in stock market, The damage is real; the financial loss is terrible. You can frequently regret making the exchange since it stings. The instinct to avoid pain at all costs is one that is very human. Both the actual financial loss and the sheer regret of making a poor trade are unpleasant. Regret may be so agonisingly painful at times that many traders will not even place a trade out of concern for having to deal with the regret of loss in the future.
When we discover we’ve made the wrong choice, like placing a losing trade, we feel regret. And the hurt gets worse if we made that decision with a lot riding on it in terms of ego. We’ve risked a lot of self-identity along with our money, for instance, if we conduct an exceptionally thorough analysis and begin to believe that the analysis was so brilliant that it validates our expertise as skilled traders. Whether we realise it or not, we have a tendency to think, “I’ve worked hard on this deal, and I think I’m correct. But if I’m mistaken, it might mean that I’m not as skilled a trader as I formerly believed.
In contrast, if we made a transaction on a whim. Regrets in stock market, we might still feel sorrow over the loss, but it wouldn’t hurt as much. We can simply write off the losing trade psychologically since we didn’t put our egos on the line: “It’s not my fault that I lost money on that trade. I merely struck the deal on a whim. Since regret is difficult, some people will go to considerable lengths to avoid experiencing these unsettling feelings. On the surface, it frequently appears that simply refraining from making judgments is the simplest method to prevent regret.
You cannot make a mistake or feel regret if you don’t make a decision.
Although it would seem like a simple way to avoid regret, you might find that avoiding deals (or making impulsive, poorly thought-out trades to boost your ego) prevents you from piling up profits, which is the ultimate purpose of trading. Learning to deal with regret head-on is a more realistic answer.
There are a few easy methods for handling regret. The most crucial step in managing regret is to acknowledge that it is an emotion you will inevitably feel as a trader. You will make lost deals, and if you don’t take the necessary measures, you will later feel sorry for yourself.
All people frequently have a tendency to exaggerate the negative consequences of a feared situation. We frequently believe that a bad, terrible, or disastrous exchange would occur. In actuality, if we carefully plan the trade and manage our risk, the danger will be minimal and not at all disastrous. One’s potential demise is considerably inflated in such circumstances. I’m making more of the prospective loss than it deserves; it won’t be as terrible as I’m assuming it will be, you can tell yourself as a helpful thought exercise. Attempting to make the deal impersonal is another technique to reduce, Regrets in stock market.
Consider the likelihood that this trade is only one among many others. The result of this one deal is meaningless. All that matters is the larger picture. You can lessen the possible remorse should you lose a trade by reminding yourself of its relative insignificance. Similarly, it’s crucial to keep in mind that a single losing deal (or even a few) does not necessarily indicate that you lack trading competence; it could simply be a run of bad luck. Making a trade’s result emblematic of your trading prowess serves no purpose. Most importantly, never risk your financial security by jeopardising your sense of worth. You are an expert.
Avoid letting the propensity to avoid regret affect your trading choices. Regret may be a strong feeling. Sometimes it can be so excruciatingly unpleasant that one avoids making choices, which can result in making impulsive deals to preserve one’s ego. But you don’t have to let your dread of regret guide you. Remember that even though you might experience a little regret if you make a lost deal, you can handle it. Never attempt to escape regret. Face it directly. More power and freedom will come over you.