Systems don’t need to be changed. The trick is for a trader to develop a system with which he is compatible. -Ed Seykota
Traders can make psychological mistakes that can quickly endanger their career. Here are a few examples:
- They take on more risk than they can deal with. When stress takes over, traders start making bad decisions.
- They become married to a trade. They ignore their stop losses, letting stop losses mount because they wan to be right.
- Their egos take over their trading. They are more concerned about proving how smart or clever than they are about making money.
- Their system does not match their personality or lifestyle. Someone who likes fast paced action should not be a long term growth investor, for example.
- A trader loses many times in a row, so they panic and change systems. If you have a proven system, trade it for the long term benefits.
Here are some solutions:
- Understand the possible risk of loss in any trade and accept that from the start. If you are stressed out, you are trading too big, size down.
- Honor your stop loss or trailing stop the first time. Trust me, it is not worth it on your nerves or psyche to hold a losing trade.
- If you are a disciplined trader, then it is your system that wins and loses on every trade, not you. It is not a victory or loss for your ego after each winning or losing trade. Trend traders make money when there is a trend, growth stock investors make money in markets rewarding growth stocks, day traders make money when their planned entries work out.
- You must adjust what you are trading, the time frame you are trading, and how big you are trading until you are completely comfortable with your trading plan.
- Decide who you are as a trader. Find the system that fits you, and stick with it over to improve your trading success.