The weakest link to any trading strategy is the trader that is suppose to be executing it. It is usually the mental and emotional errors of the trader that cause the 90% of unprofitable traders to lose money. Trading success is determined more by the mindset of the trader than their skills with math, economics, or macro knowledge.
- The ego takes over the trader and being right becomes the #1 priority. This causes the trader not to take losses becasue they don’t want to be proven wrong.
- Greed causes traders to trade too big because they want to make a huge amount of money in one trade.
- Fear causes a trader to exit to early with a very small profit because they are afraid it will disappear.
- Discouragement causes a trader to quit before they have given themselves or their systems enough time to win.
- Coat tailing is when a trader follows a guru’s trades instead of learning to trade correctly themselves.
- Style drift is when a trader changes their method instead of sticking to it and letting it play out when the right market environment emerges.
- Arrogance leads a trader to trade too big and take on too much risk, this usually happens after a big winning streak or outsized win.
- Hope is when stop losses are replaced with prayer.
- Boredom is a dangerous time where a trader cares more about active trading than making money.
- Desperation is a dangerous mental state that leads a trader to make a “Hail Mary Trade”, this usually happens when the trader is in a deep draw down and tries to get back to even in one big ill advise low probability trade.
Trading more than anything is a mind game. If you want to master trading then first master your own mind.