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Taking Controlled Risk & Optimism in Trading

  
  Education
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  • Probability is the mathematical center of wise risk. Successful traders risk to win. For the risk taker, this uncertainty between small loss or large profit is where the fun is.
  • If you tend to over trade or over risk, you need to pull in your frame of safety. You need to establish trading guidelines that will protect you. You need to be alert to your propensity to over risk and step back every time you catch yourself over extending.
  • If you tend to avoid risk, you need to expand your frame of safety. You need to slowly add risk to your trading so that you become emotionally inoculated. Decrease your trading size and / or change to a trading vehicle that is less volatile. When this is comfortable, slowly increase size and volatility.

  • When good things happens to an optimist, he says it’s permanent, pervasive, and personal. When a bad thing happens to an optimist, she says it’s temporary, specific, and not personal.
  • Because the optimistic trader looks with bright enthusiasm towards the future, she is able to be realistic about what has happened in the past and is happening in the present. A pessimistic trader who has limiting doubts about his future trading, may be unwilling to admit what has happened or is actually occurring.

Step Into Personal Empowerment

  
Analysis, Education
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Accepting ownership of consequences and balancing responsibility with your own personal goals lets you overcome stress, enabling you to making empowering decisions.

1) Awareness

Become aware of how you are in any given context. Look for a pattern. Be honest with yourself and recognise the pattern. Recognising and admitting you have a pattern that you would like to change is the courageous first step to self-actualisation.

2) Analysis

The next thing to do is to examine the engine of this pattern. What are the fears and the behaviours that keep this pattern alive? When do they kick in? What are you thinking? What do you believe? What is the stress you feel?

3) Action

The final step is to change it. What do you want? What needs to change? What do you need to believe in order to bring out that confident person inside you?

Decisions are your stepping stones through life. Some stepping stones can be wobbly and if you are on a wobbly one and not enjoying it, there is another stepping stone close by waiting for you to recognise it and hop on.

Goal Setting

  
  Education
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Competitive goals can lead to burnout. Michael Jordan who is a compulsive competitor, exhausted himself in continually reinventing new ways to spark the fire in his enthusiasm.

Destination goals, such as, “I’ll get to this particular place by x date” tend to be difficult to maintain since the reward exist in the non-existent future.

Process goals, are increments of cumulative experiences that instantly offer rewards in the present of now. For example, when I first started day trading, I made no attempt to make a lot of money immediately. My immediate goal was to learn market dynamics without suffering major financial losses.

I convinced myself that once I learned how to not loose money, probability favors my chances of starting to make money!.

This approach allowed me to (1) maintain my self-confidence, (2) stay in the game without capital blow-out, (3) develop a non-emotional response to rapid fire decision making, (4) handle small draw down with minimum psychological upheaval, (5) visualize the feeling that I will be doing this for the next 50 years, and (6) secure the knowledge that my journey was a life long commitment to learning.

I believe it is good to set smaller challenges that generate rewards in the present and not in the non-existant future and let the long term goal of consistence of profit flow naturally from a great set of process actions, such as system design, indicator design, system testing, placement of trades, etc.

“It is the very foundation of strategy to be able to adapt to any situation and continue fighting without losing heart. You gain this ability by practicing day in and day out with intensity.”
–Miyamoto Musashi
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