Psychology of Trading or the Market Is Always Right
I am sure that in my last article, some of you were a little confused a lot of phrases and theories are seemingly open-ended, but as I said, I look forward to meeting you will be able to some of your questions answered on this subject (again Ken opportunity to ask questions ). In this article, as already mentioned, we look a little more detail on the very important aspect of trading and the trader's psychology.
Those of you who already read a book or literature on behavioral finance, is undoubtedly an awareness that each dealer, investment manager or an individual investor in addition to all the usual financial motives will have a series of psychological barriers that will be on its way to logical, rational and wise investment decisions to deal with. These include non-financial costs associated with recognizing opportunities, favoring one path over another, etc.
These barriers, however, in the case of private traders and many times even enhance it more difficult to overcome. The text of this article I will try to name some of them. The most important advice that I can give you before you start trading, in principle, venture capital, you are ready to invest, whether it's any amount, must be utterly dispensable and, moreover, should be considered to be drowned before it no use. As for trading invest 50 000 USD, you have to be before they lose even a single dollar, prepared for the fact that your initial deposit (50 thousand. USD) you never see again. If you really can get rid of this money, and if their loss in any way affect the course of your life, your standard of living, etc., then you can possibly invest the money to proceed. It is important that while you may think you are from those able to successfully get rid of money, but even for you emotionally and financially painful, though (and I stress) a part of them lose. No equity curve is not a one of the world and even the best marketers on the planet sometimes suffer a loss.
HOW TO START?
As I started I? Almost like starting almost everyone - Mock trading course... before we continue, I want you to realize that in real life is never so successful as when doing something just for the exam. Including me. Open shop where you do not risk any real money, it is practically the easiest thing in the world. Your patience in the mock trading is much larger than in real practice. 5% decline in the virtual trade may seem unpleasant, but it's no disaster. Whereas if you risk real money, your emotions will win you over, you eventually close their positions are far from reaching a predetermined stop level, then you find out that the market never reached this level and, in fact, turned almost immediately after you have entered into an early position.
KEY AREAS OF TRADERS MOST EMOTIONAL be very hard to handle:
1st Formulate a business plan, and especially to keep him unconditionally.
2nd Be patient, ie to have faith in your plan, whether correct or incorrect.
3rd Bogged down by losses and gains too quickly select (and thus in the ratio of trade to devastate the real risk to earnings)
4th When you're in trouble, double the bet... THIS IS UNDER NO CIRCUMSTANCES DO!
MAKE YOUR BUSINESS PLAN
The business plan is the most important friend, what you have on the market. This applies to both the virtual and the real trading. Mock trading advantage is that it is much more forgiving of your mistakes, and thus gives you the luxury of you after each transaction to reconsider their style of trading. You can hone your skills in time, determining the input and output levels, timing and general selection of shops, without yet come for real money. From a psychological standpoint it is very important to such errors, which you also mock some of the money will prepare, detect and promptly deal with them than just mutter under his breath, when trading with real money, this does not happen.
Precisely this approach was in my own case, one of the things I did not deprive the beginning of his career worst, not to mention the fact that I have for him a few times initially experienced quite a lot of money (real). The lesson that you should take away from this is that you should never let ourselves be blinded. After you based on the plan so that you can adjust to your own style, manages to mock conclude several successful businesses, I would still recommend you check out one more time, if your particular plan really makes sense and what are the specific conditions of its overall success. In other words, your plan must keep working.
WORK FOR YOUR PATIENCE
Patience is a merchant (certainly true in my case) the greatest enemy! But when you have a plan, you should find yourself well enough determination and courage to be able to manage it well. If your plan fairly prepared, then even if the market turns against you, your loss will be greater than what was acceptable to you, you when you enter the store. And then you can learn from the experience, according to its plan to adjust it to other stores and still continue to do so. With evolving business negatively related to another phenomenon, are encountered more frequently than you can imagine. I am of course referring to a scenario in which a company lets a loss position open for much longer than originally intended, but once the market turns even slightly in his favor, concluding the trade immediately, so that he could be attributed at least some profit. And I can tell you that the "any profit" is often not nothing more than spread plus a few basis points to it.
REMEMBER THAT THE MARKET IS ALWAYS RIGHT
Now I'll give you an example from his own life - when I started trading, I often kept the positions open to good 5-10% after exceeding a predetermined stop loss. Because I was so convinced of the truth and I got the market wrong, that I thought it was just a matter of time until the position is again reversed, and the whole time while I was nervously biting nails, and watched me my capital disappearing before our eyes, so soon after the market finally turned positive direction and the numbers on my profit and loss account turned from red to black, I was happy as a flea and I looked all business concluded as soon as possible. Yes, I had just earned, but much worse was that I then often just watching the store picking up further gains, but this time without my involvement, because I had so much wanted to end his suffering, that when the opportunity arose to close at least with some profit from the store I got out. Even worse was that my plan remained the whole time exactly what its name says - just plan. When I started trading live, all my plans began to simply ignore it, and once I began to ascribe a quick profit, while I had tolerated the risk of such a large decline, due to my whole risk / reward ratio thus went simply to flowers...
When you're in Trouble,
And finally, the last thing I need to mention, of course, is that the notion that losing trade will save the opening of another position, it is only nerychlejm way to lose even more. The whole idea is based on the idea that simply get back what you've lost, because the market must eventually turn...... Sometimes when I put it simply, in such a thing nedoufejte. Want an example? Look, how the currency pair EURPLN ever since late May and June last year for the next three months about this trade... I tried once and burned myself. Others have tried it several times and eventually lost everything because the market went in one direction almost continuously for over four months. And when he finally turned left only those very few who were able to withstand all this way...
And then of course one more thing - if your business can not really afford it and do not have enough free money, lose their money because the shops will never be able to decide rationally...
more on www.proofi.com
Those of you who already read a book or literature on behavioral finance, is undoubtedly an awareness that each dealer, investment manager or an individual investor in addition to all the usual financial motives will have a series of psychological barriers that will be on its way to logical, rational and wise investment decisions to deal with. These include non-financial costs associated with recognizing opportunities, favoring one path over another, etc.
These barriers, however, in the case of private traders and many times even enhance it more difficult to overcome. The text of this article I will try to name some of them. The most important advice that I can give you before you start trading, in principle, venture capital, you are ready to invest, whether it's any amount, must be utterly dispensable and, moreover, should be considered to be drowned before it no use. As for trading invest 50 000 USD, you have to be before they lose even a single dollar, prepared for the fact that your initial deposit (50 thousand. USD) you never see again. If you really can get rid of this money, and if their loss in any way affect the course of your life, your standard of living, etc., then you can possibly invest the money to proceed. It is important that while you may think you are from those able to successfully get rid of money, but even for you emotionally and financially painful, though (and I stress) a part of them lose. No equity curve is not a one of the world and even the best marketers on the planet sometimes suffer a loss.
HOW TO START?
As I started I? Almost like starting almost everyone - Mock trading course... before we continue, I want you to realize that in real life is never so successful as when doing something just for the exam. Including me. Open shop where you do not risk any real money, it is practically the easiest thing in the world. Your patience in the mock trading is much larger than in real practice. 5% decline in the virtual trade may seem unpleasant, but it's no disaster. Whereas if you risk real money, your emotions will win you over, you eventually close their positions are far from reaching a predetermined stop level, then you find out that the market never reached this level and, in fact, turned almost immediately after you have entered into an early position.
KEY AREAS OF TRADERS MOST EMOTIONAL be very hard to handle:
1st Formulate a business plan, and especially to keep him unconditionally.
2nd Be patient, ie to have faith in your plan, whether correct or incorrect.
3rd Bogged down by losses and gains too quickly select (and thus in the ratio of trade to devastate the real risk to earnings)
4th When you're in trouble, double the bet... THIS IS UNDER NO CIRCUMSTANCES DO!
MAKE YOUR BUSINESS PLAN
The business plan is the most important friend, what you have on the market. This applies to both the virtual and the real trading. Mock trading advantage is that it is much more forgiving of your mistakes, and thus gives you the luxury of you after each transaction to reconsider their style of trading. You can hone your skills in time, determining the input and output levels, timing and general selection of shops, without yet come for real money. From a psychological standpoint it is very important to such errors, which you also mock some of the money will prepare, detect and promptly deal with them than just mutter under his breath, when trading with real money, this does not happen.
Precisely this approach was in my own case, one of the things I did not deprive the beginning of his career worst, not to mention the fact that I have for him a few times initially experienced quite a lot of money (real). The lesson that you should take away from this is that you should never let ourselves be blinded. After you based on the plan so that you can adjust to your own style, manages to mock conclude several successful businesses, I would still recommend you check out one more time, if your particular plan really makes sense and what are the specific conditions of its overall success. In other words, your plan must keep working.
WORK FOR YOUR PATIENCE
Patience is a merchant (certainly true in my case) the greatest enemy! But when you have a plan, you should find yourself well enough determination and courage to be able to manage it well. If your plan fairly prepared, then even if the market turns against you, your loss will be greater than what was acceptable to you, you when you enter the store. And then you can learn from the experience, according to its plan to adjust it to other stores and still continue to do so. With evolving business negatively related to another phenomenon, are encountered more frequently than you can imagine. I am of course referring to a scenario in which a company lets a loss position open for much longer than originally intended, but once the market turns even slightly in his favor, concluding the trade immediately, so that he could be attributed at least some profit. And I can tell you that the "any profit" is often not nothing more than spread plus a few basis points to it.
REMEMBER THAT THE MARKET IS ALWAYS RIGHT
Now I'll give you an example from his own life - when I started trading, I often kept the positions open to good 5-10% after exceeding a predetermined stop loss. Because I was so convinced of the truth and I got the market wrong, that I thought it was just a matter of time until the position is again reversed, and the whole time while I was nervously biting nails, and watched me my capital disappearing before our eyes, so soon after the market finally turned positive direction and the numbers on my profit and loss account turned from red to black, I was happy as a flea and I looked all business concluded as soon as possible. Yes, I had just earned, but much worse was that I then often just watching the store picking up further gains, but this time without my involvement, because I had so much wanted to end his suffering, that when the opportunity arose to close at least with some profit from the store I got out. Even worse was that my plan remained the whole time exactly what its name says - just plan. When I started trading live, all my plans began to simply ignore it, and once I began to ascribe a quick profit, while I had tolerated the risk of such a large decline, due to my whole risk / reward ratio thus went simply to flowers...
When you're in Trouble,
And finally, the last thing I need to mention, of course, is that the notion that losing trade will save the opening of another position, it is only nerychlejm way to lose even more. The whole idea is based on the idea that simply get back what you've lost, because the market must eventually turn...... Sometimes when I put it simply, in such a thing nedoufejte. Want an example? Look, how the currency pair EURPLN ever since late May and June last year for the next three months about this trade... I tried once and burned myself. Others have tried it several times and eventually lost everything because the market went in one direction almost continuously for over four months. And when he finally turned left only those very few who were able to withstand all this way...
And then of course one more thing - if your business can not really afford it and do not have enough free money, lose their money because the shops will never be able to decide rationally...
more on www.proofi.com
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