Fear is a misunderstood emotion, and one that gets a pretty bad rap these days. We owe our survival as a species to the hard-wired fear that kept us safe from physical threats for hundreds of thousands of years.
But what about the litanies of fears that plague traders every day? Fear of losing, of watching profits disappear, of making mistakes, of missing out?
Perhaps the larger question is this: If almost every trader feels fear, why do millions of people continue to trade? The answer lies in the way that fear is perceived.
For many, fear is a predator that’s constantly lurking, sneaking up on them, ready to attack at any moment. In this mindset, they’re always running away from fear, crouching in a corner, or looking for a safe place to hide. Fear blinds them to opportunity.
For others, fear is the prey. They move steadily and with discipline in the direction of the fear — always keeping it in front of them. As they approach the fear, they see it for what it really is.
F.E.A.R.: False Evidence Appearing Real. They see fear as something to go through in order to get what they desire — better trades and more profits. (more…)
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Thought For A Day
2 -Risk Quotes For Traders
You are the biggest risk. Yes, that’s right you. All of your talk of discipline, preparation, planning, all of the hours of screentime, all of the chats with trader friends–all of that isn’t worth much if you are don’t follow through and do the right thing. If you aren’t disciplined every moment of every trading day, you are not a disciplined trader. The market environment is harder than you can imagine, and it will challenge you to the very limits of human endurance. Spend a lot of time thinking about the most critical part of your trading system: you, yourself.
Plan for risks outside the market. Everyone, from the institutional scale to the individual trader, will have outside influences challenge their market activities. Institutionally, regulatory changes and developments in market structure can dramatically change the playing field. Your investors will make mistakes–becoming fearful and exuberant at exactly the wrong times. If you’re an individual investor, you will face outside financial stresses, personal issues, health issues, etc. All of these things will have an effect on your trading that is hard to capture in the numbers, but prudent planning will allow you to navigate these challenges.
RISK in Trading -Anirudh Sethi
Life is full of risks, and risks are all around you as a trader. In a perfect world there would be no risks and any decision you make will turn out to be the best one. You can hope for win after win, and not even have to worry about the prospect of losing. Yet this is an unrealistic and impossible scenario because as we all know trading is all about risk. However, there is no need to be afraid of risk. We need to accept the fact that it is there, and rather than focusing on fear we need to know how to deal with it and manage it.
This is where risk management comes into play. As a trader you need to be disciplined. You need to know how to understand the way you are thinking. At the end of the day it is all about trading psychology. Trading is not solely about getting an understanding of the market, and the trading skills such as recognizing trading patterns and managing risks. It is also about training yourself to be self-assured without being too risky. It is about being cautious, but not wait too long to take an action. It is about blocking emotions and sentiments which could impair your judgments. The market is constantly changing and you are going to be constantly faced with challenges, and so risk is inevitable. However the risk taht you tae can be calculated.
Thus as a trader you will need to balance out your trading skills with your trading psychology so as to master the mental game of trading. Here are some general rules which can help you in risk management:
- Emotions have no place in trading. You need to make well planned and well calculated decisions that are not affected by sentiments. Otherwise your decision making process is going to take longer, and in all probability, be skewed.
- You need to accept that you are not perfect, and so there are going to be times when you succeed, and other times when you fail and lose money. Successes and failures will result in different, and extreme emotions, but these emotions need to be controlled so as to keep thinking straight.
- In order to minimize risks, many traders are well aware that it is best to opt for diversification. Having an diversified portfolio will help to reduce your risks. Money should be distributed across different kinds of investments so that in case a certain trading decision goes wrong it will be less likely to affect the trader in a dramatic way as one would still have other investments at one’s disposal.
- Gaining experience is what many traders believe in in order to succeed. Through experience you gain more insight and knowledge, as well as trading skills. However despite their importance, they are not going to be enough to back your progression as a trader. You need to couple this up with clear thinking.
- You need to have the willingness to take risks. However the risks that you take can be calculated and appropriate. Trading is risky, but in time you will learn how to go about it so as to minimize risks and the results thereafter. For instance, you should only risk money that you can afford to lose. Otherwise, it is best not to trade at all in such cases.
Trading Psychology
Warren Buffett Warns Amateur Investors Against This Common Mistake
Today’s Smart Investor tip comes from billionaire investor Warren Buffett, who outlined the biggest mistakes amateur investors make for Adam Shell at USA Today.
The Oracle of Omaha warns investors against an incredibly common mistake: You shouldn’t try to time the market. He says it’s a mistake to predict or listen to others who predict the short-term movement of stocks. By the same token, he says you shouldn’t try to flip stocks like high-frequency traders do.
Instead, Buffett says the best thing the average investor can do is buy an index fund over time. That’s it. From USA Today: (more…)
Evolution and Misconceptions
Plan You’re Way to Profit
When you enter a trade you should have a figured a game plan for both the entry and exit of the trade. The plan should be definite and not subject to changes to your psychology during market hours. You should have a stop in the market at all times, because you never know when a time cycle might turn against you. You should also have a profit objective in the market. So many traders today lose because they are using computer oscillators to trade with and they never know where they are going. They usually end up on trading with rumors and tips and use hope and fear to try to make a success of the markets.
Why investors who are obsessed with money are less likely to succeed
