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
The Right Frame of Reference
When they first begin trading, many new traders experience frustration. It’s normal to hear a new trader lament, “I have no idea what’s wrong. Every chance I have, I research the markets. Even when I place transactions when the market is ideal, I consistently fail to turn a profit. However, one can question whether enough time and effort is put into trading. How much actual time is invested? How many transactions actually take place? These questions have very individualised answers. Some inexperienced traders may only have a few hours a day to spare.
They must then keep an eye on the markets, search for excellent stocks to trade, and actually carry out trades under perfect circumstances. Is this sufficient time? It varies. It will be adequate if you have a sizable account and don’t require a sizable profit. However, what if you just have a tiny trading account and little free time but still want to make a sizable profit? In that situation, you might be being overly optimistic. Successful traders operate within a grounded reality. They don’t attempt the impossibly difficult.
As with any difficult undertaking, success depends on investing the time and effort required. The amount of time and effort victors invest is typically what separates them from losers. According to studies, unsuccessful people have two key flaws: they lack an appropriate frame of reference and are frightened to precisely evaluate how much time and effort they put into a project. In other words, individuals mistakenly believe it to be simpler to accomplish a goal than it actually is. Despite the fact that they are far from doing enough, they mistakenly believe they are investing enough time and effort.
Trading coaches describe a similar phenomenon among novice traders. Many novice traders treat trading as a hobby rather than a serious business. That’s fine if you view trading as merely recreational gambling, but if you expect to make reasonable profits from your efforts, it is necessary to take things a little more seriously. Trading is a skill, just like a skill that professionals, such as doctors or lawyers, develop. Developing a high level of skill takes time and a heroic effort. It often takes several years to develop the skills of a seasoned professional, and that is also true of trading.
You must get experience with all of those factors in order to earn in a variety of market circumstances. Furthermore, no trading plan is totally infallible. You must consistently create fresh tactics and plans, then test them in various situations. To trade skillfully, flexibly, and effortlessly requires experience. To develop such talents, a hobbyist approach will fall short.
You need to have a realistic frame of reference if you want to advance from the position of an amateur hobbyist to that of a master trader.
You must be willing to approach the growth of your trading talents in the same way that other professionals do. Consider your life as working your way through undergraduate and graduate studies if you must work a normal job to cover your expenses. It entails rearranging your priorities and committing firmly to improving your talents. It will need numerous hours of research and instruction from reliable sources. Additionally, being realistic is crucial. The “graduation rate” of new traders to seasoned traders is low, so if you want to be one of the select few who succeed, you must accumulate as much experience as you can and make whatever sacrifices are necessary.
So don’t let anything stand in your way of being a master trader. Spend the required time and effort. Long-term trading success will be your reward in the end.