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Trading obstacles

Trading obstacles

Have you ever been to a situation when you moved the stop because you couldn’t accept the lose, but ended up losing big chunk. Or you were too sure about the direction of the trade, you didn’t even put a stop loss but trade went opposite your way and ended up losing ten times more then what you suppose to lose. What about this scenario, you were sitting on big profit; you didn’t partial because of greed or overconfidence and ended up giving every thing to the market. Never been to this kind of situation, that’s great, but if been through this kind of horrible situation and still having this problem then you are not alone. We human naturally like that, can’t accept loses or in other word we like to win. In the trading word it is impossible to win 100% of the time, trading is game of probability .Very simple concept which part of the probability we don’t understand. Probably we understand probability but when we involve in a trade our ego overleaps the logical part of our brain.
What should we do, we will let our ego to ruin our trading career or we will say good bye to our ego.

1.Be honest to your self
2.Admit you mistake
3.Overconfidence is you enemy
4.Think logically
5.Try to keep record of every trade
6.Never revenge trade
7.Market is always right not you.

Top 10 Reasons Traders lose their discipline !!!

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Losing discipline is not a trading problem; it is the common result of a number of trading-related problems.
Here are the most common sources of loss of discipline, culled from my work with traders:

  1. Environmental distractions and boredom cause a lack of focus.
  2. Fatigue and mental overload create a loss of concentration. (more…)

Top Ten Reasons Traders Lose Their Discipline

Losing discipline is not a trading problem; it is the common result of a number of trading-related problems. Here are the most common sources of loss of discipline, culled from my work with traders:

10) Environmental distractions and boredom cause a lack of focus;

9) Fatigue and mental overload create a loss of concentration;

8) Overconfidence follows a string of successes;

7) Unwillingness to accept losses, leading to alterations of trade plans after the trade has gone into the red;

6) Loss of confidence in one’s trading plan/strategy because it has not been adequately tested and battle-tested;

5) Personality traits that lead to impulsivity and low frustration tolerance in stressful situations;

4) Situational performance pressures, such as trading slumps and increased personal expenses, that change how traders trade (putting P/L ahead of making good trades);

3) Trading positions that are excessive for the account size, created exaggerated P/L swings and emotional reactions;

2) Not having a clearly defined trading plan/strategy in the first place;

1) Trading a time frame, style, or market that does not match your talents, skills, risk tolerance, and personality.

Top Ten Reasons Traders Lose Their Discipline

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Losing discipline is not a trading problem; it is the common result of a number of trading-related problems. Here are the most common sources of loss of discipline, culled from my work with traders:

10) Environmental distractions and boredom cause a lack of focus;

9) Fatigue and mental overload create a loss of concentration;

8) Overconfidence follows a string of successes;

7) Unwillingness to accept losses, leading to alterations of trade plans after the trade has gone into the red;
6) Loss of confidence in one’s trading plan/strategy because it has not been adequately tested and battle-tested;
5) Personality traits that lead to impulsivity and low frustration tolerance in stressful situations;
4) Situational performance pressures, such as trading slumps and increased personal expenses, that change how traders trade (putting P/L ahead of making good trades);
3) Trading positions that are excessive for the account size, created exaggerated P/L swings and emotional reactions;
2) Not having a clearly defined trading plan/strategy in the first place;
1) Trading a time frame, style, or market that does not match your talents, skills, risk tolerance, and personality.

Don't Get Trapped

1) Anchoring trap. The mind gives a disproportionate amount of weight to the first information received on a topic. Keeping an open mind and avoiding premature conclusions is a way to avoid this trap.

2) Status quo trap. Forecasts tend to perpetuate recent observations. If inflation has been high, it is expected to remain high. It is a psychological risk to assume something different. The authors suggest rational analysis within decision-making to avoid falling into this trap.

3) Confirming evidence trap. Individuals give greater weight to information that supports an existing point of view. Being honest to oneself about one’s motives, examining all evidence with equal rigor, and enlisting independent-minded people to argue against you are ways of mitigating this bias.

4) Overconfidence trap. Individuals overestimate the accuracy of their forecasts. Widening the range of expected possible outcomes is one way to mitigate this tendency.

5) Prudence trap. There is a tendency to temper forecasts that appear extreme. If a forecast turns out to be extreme and then wrong, it could be damaging to one’s career. Therefore, sticking to the herd is safer. The authors again suggest widening the range of expected possible forecasts to avoid falling into this trap.

6) Recallability trap. Individuals are overly influenced by events that have left a strong impression on a person’s memory. These events tend to be catastrophic or dramatic. To avoid falling into this trap, individuals should ground their conclusions in objective data rather than emotion or memories.

Magical thinking

Magical thinking describes subjective speculation about how markets will act. It is difficult to know for sure how significant a role intuition about the likelihood that investments will do well or poorly plays in peoples? decisions to invest. We are trying to assess innermost thoughts about money and self worth which most people feel they do not have to explain or justify to anyone. However, we can label these patterns of thought as magical thinking. Most investors have occasional feelings or intuitions that certain trading actions will bring them luck even if they know logically the actions can have no effect on their fortunes. Playing a hunch just because it feels right seldom makes traders rich. Yet proof that it’s human nature to indulge in magical thinking abounds:

  1. It has been shown that people will place larger bets on a coin that has not yet been tossed than on a coin that has already been tossed, but the outcome of the toss has yet to be revealed.
  2. If asked how much money they would demand to part with a lottery ticket they already hold, most ticket holders give a figure over four times greater than if they themselves chose the lottery number on the ticket. Apparently, at some magical level people think that they can influence a coin that has not yet been tossed and influence the likelihood of winning the lottery by choosing the number.
  3. People are capable of thinking, at least on some intuitive level, If I buy a stock, then it will go up afterwards or If I buy a stock, then others will probably want to buy the stock, too, because they are like me or I have a hot hand lately; my luck is with me. Such magical thinking is likely, in a subtle way, to contribute to the overconfidence that may help the propagation of speculative bubbles.

Confidence: How to Apply the Goldilocks Principle as a Trader Read more

An absolutely crucial characteristic all successful traders share is confidence. Success is only achieved when a trader has the confidence to execute his ideas without being overcome by emotional fears. I believe that creating a game plan and sticking to it will foster confidence in the long run because the trader defines all aspects of his trade that he can control; the rest is left to the market. Confidence based on winning trades is fleeting, but confidence based on the ability to objectively execute ideas leads to long-term, unbreakable confidence.
Yet I often see two primary psychological problems that traders experience with regard to confidence. There is overconfidence and underconfidence, both of which lead to very serious complications in one’s trading. Overconfidence occurs when the trader has had a string of winners and feels indestructible. A common statement of reflection once destruction occurs is usually something like: “I thought I knew more than the markets” or “I thought I had trading all figured out.” The trader usually begins to get sloppy in their trading and takes poor risk/reward trades, believing it will just work out for them. Hard-earned profits can disappear in a very short time if overconfidence is present — unless the trader has learned the techniques to recognize this and nip it in the bud quickly. (more…)

10 Obstacles to Success for Traders

1        Greed, the urge to make as much money as possible, and fear that he will lose it all.

2        Low confidence in himself or his strategy, which makes him enter or exit trades at the wrong time. Low self esteem is also a problem; lots of people are natural victims and believe that they will probably fail, and of course this is what they do.

3        Middle class guilt that makes the trader believe that he should not make super profits because it is morally wrong.

4        Overconfidence. Feeling that after so many winning trades he is invincible.

5        Disbelief. He believes that high rewards cannot possibly be true, and “If trading is that easy, then everyone would be doing it.” He then looks for complicated strategies in the belief that it cannot be easy.

6        Paranoia, believing that the market is conspiring against him.

7        Reward for effort, where he feels that people should be rewarded fairly for the effort that they put in. FX trading does not operate with these rules and that is confusing. The reward can be disproportionately high or can result in punishing losses, and is not dependent on just the work put in.

8        Insecurity, resulting in changing a strategy that is actually winning. All strategies must be tested and then consistently applied in order to engender confidence.

9        The urge to trade simply because he is a trader. This impatience results in entering trades when no real opportunity exists.

10   Low expectation; people with a low expectation of life tend to be less successful. Even though they may be highly intelligent, they aim for less and settle for less. (more…)

7 Psychological habits

1. Overconfidence and optimism

Most of us are way too confident about our ability to foresee the future, and overwhelmingly too optimistic in our forecasts.

This finding holds across all disciplines, for both professionals and non-professionals, with the exceptions of weather forecasters and horse handicappers.

Lesson: Learn not to trust your gut.

2. Hindsight

We consistently exaggerate our prior beliefs about events.

Market forecasters spend a lot of time telling us why the market behaved the way it did. They’re great at telling us we need an umbrella after it starts raining as well, but it doesn’t improve our returns. We’re all useless at remembering what we used to believe.

Lesson: Keep a diary, revisit your thinking constantly.

3. Loss aversion

We hurt more when we sell at a loss than we feel happy when we (more…)