Systems don’t need to be changed. The trick is for a trader to develop a system with which he is compatible. -Ed Seykota
Traders can make psychological mistakes when trading that can end a trading career very fast. Here are a few examples:
- They take on more risk than they can deal with, stress takes over and they start making bad decisions.
- They become married to a trade, they become stubborn and ignore their stop losses, wanting to be “right” they wait while losses mount.
- Their egos take over their trading. They are more concerned about proving how smart or clever they are than making money. They begin to be more concerned with bragging about their winners than managing their losing trades. It becomes an ego trip that will not end well.
- Their system does not match them, someone who likes fast paced action should not be a long term growth investor and someone who loves investing in growth stocks they believe in should not day trade.
- A trader loses many times in a row so they change systems right before the big pay off. If you have a proven system trade it for the long term benefits.
Here are some solutions:
- Understand the possible risk of loss in any trade and accept that before you trade. If you are very stressed out over a trade you are trading too big, size down.
- Honor your stop loss or trailing stop the first time. Trust me, it is not worth it on your nerves or psyche to hold a losing trade.
- If you are a disciplined trader then it is your system that wins and loses on every trade, not you. It is not a victory or loss for your ego after each winning or losing trade. Trend traders make money when there is a trend, growth stock investors make money in markets rewarding growth stocks, day traders make money when their planned entries work out. The market determines if you win or lose by whether it behaves in a way that is conducive to your system winning.
- You must adjust what you are trading, the time frame you are trading, and how big you are trading until you are comfortable with it completely.
- Decide who you are as a trader, find the system that fits you, and stick with it over the long term.
The less emotional you can make your trading and the more it feels like a business, the more successful you will be as a trader.