Why do smart traders do dumb things? It is usually an issue with overwhelming emotions, and not intellect, when bad trades happen. Here are a few of the primary reasons that traders struggle.
~The biggest cause of trading a position size that is too big? It’s the greed of wanting the big win that makes you take on too much risk, rather than not having enough faith in your entry.
~Missing a great entry signal is often not due to being too cautious. Instead, it is usually the result of the fear of losing. A string of losses, a large loss, or a lack of faith in your trading system, leads to missing an entry that your trading plan indicates you should take.
~Not taking a loss at your initially planned stop loss, isn’t because you believe it will come back, but is the result of having talked publicly about your positions, so that your pride keeps you from exiting and admitting that you are wrong.
“I think investment psychology is by far the more important element, followed by risk control, with the least important consideration being the question of where you buy and sell.” – Tom Basso