Questions
A Trader and his money
This is hurdle most everyone goes through in their evolution in their money management.
Why is it hard to take a loss?
The loss is not anticipated, and comes as a total surprise, and shakes the mental foundations and confidence, the loss on average is much larger then the minute to minute fluctuations. Thus when trading, the trader feels it would be prudent to wait for it to retrace a little before registering loss.
Why is it hard to let a win run?
The ability to register a win in a account even though small, induces a sense of overconfidence in the trader, so the trader registers small wins instead of letting it run. The win is not anticipated either similar to a loss, so the surprise reward makes one want to push the button earlier.
Why is hard to buy or sell something on breakout?
Where the price is much higher then what it was or where the price is much lower then where it was.
What causes fear and greed in the marketplace?
Remember remedial work or corrections in junior school ? Go to Staples/ WHSmith get yourself a ruled A4 notebook and write the following throughout the whole book: “…My analysis, perceptions, beliefs and decisions on past,current and future market price action may be wrong at times…” When your hand starts to ache do 20 more pages, I did the same for stoplosses and changed immediately or I was faced with the prospect of writing out again
Why do people register small wins and large losses?
Why do people try to pick tops and bottoms? Do tops and bottoms have a better risk/reward profile?
People are anticipating accelerated price change counter trend. Tops and bottoms are only retrospective. And they do offer a better risk/reward because of the accelerated price change, but its post print. The risk/reward is higher when anticipating a top or bottom before it actually prints. The risk is less after it prints.
Why do people over-leverage their account?
They treat their grubstake like a lottery ticket. The gambling/probability based trading approach is a tough situation to begin with. Once it becomes a belief system it affects everything psychologically and physiologically. The main effort of newbies is learning failure and it is a tough experience until most of them fail completely as a result of their choice of learning approaches.
