There is a tremendous correlation between Psychology and Trading. In particular, emotions such as Greed and Fear are intimately associated with trading.These emotions often operate very subtly in the background, often without the trader realizing it. In addition, Anger, and Hate also operate against the trader in the form of Revenge Trading. Elation and Ecstasy operate in the form of “I can’t do anything wrong” and we start taking unnecessary risks and violate all our pre-established rules. These are all things we need to guard against as we trade.
- Stop Losses are meant to protect your account NOT your trade. Once you’ve drawn your “line in the sand” don’t deviate from it just to give the trade “a little more chance of turning” unless your rules allow for it.
- Have trading maxims (sayings, mantras) that help you remember what you are supposed to be accomplishing and that help you avoid doing stupid things. Repeat your maxims as they apply to your current situation.
- Before you enter a trade, be sure it meets the entry criteria. Don’t take a trade that’s “close”. Don’t enter a trade just because it makes you happy to be in a trade. Act like a professional.
“Taking losses is part of the “job” of trading.”