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
Are you prepared to put in a full day’s work and receive zero compensation? Most people who are used to working a 9-to-5 job would respond, “No way, are you kidding?,” if you asked them. But if you are a genuine, active trader, you must recognise that there will be many days when you won’t make any money.
You could choose to work for no immediate reward for a number of different reasons. For instance, market conditions might not be ideal, and if you try to trade in such circumstances, you might potentially lose money. On another day, you might be too worn out, anxious all the time, or plain miserable. You could make trading mistakes that have long-lasting effects if you trade with a mindset that is less than ideal. Sometimes all you need to do is observe the markets to ascertain what is happening and the state they are in. To keep ahead of the pack, you might also want to read up on new trading strategies at other times.
Other times, instead of focusing on making money right now, you need to pay close attention to learning new techniques and developing new talents. Many people perceive their typical blue- or white-collar occupations considerably differently than seasoned, aggressive traders do. Being able to intuitively sense the markets and recognise when to push themselves and when to back off and wait for better times is a necessary talent for this creative career.
Many people find it difficult to tolerate spending time that doesn’t immediately result in an immediate benefit. The majority of people are accustomed to receiving hourly, weekly, or monthly pay. But you have to approach things differently when you’re in the trading business. You cannot concentrate on earning a consistent income. Think about what would happen if you rigidly believed you needed to earn Rs 2000 per day in profit. It’s possible that you would work for a good eight hours most days without making a profit.
You might start to question how you’d accomplish your goals in the final 30 minutes of the session if you operate under the idea that achieving the RS 2000 target is very essential for every single day. As a result, you might feel pressured to finish the session on time, no matter what. You can take low probability setups or trade erratically when under duress. You might incur significant losses as a result, which you would have to make up the next day. You can experience a loss of Rs 2000 rather than a gain of Rs 2000. That day, it would have been best for you to stay out of it.
You must use your imagination and free thought when working in the trading industry. While researching the markets after-hours, you can push yourself to the maximum, but during trading hours, you need to maintain composure and be receptive to your gut instinct. You must adapt to the state of the market while using your skills to make money. Those gains can be very large at times. You won’t produce anything else at other times. But everything is OK. What happens on any individual day is not important; what counts is your overall profitability. Don’t be irritated or dissatisfied if you have days when things don’t seem to be going your way.