Anyone can be a trader. Not everyone will succeed. What prevents so many traders from experiencing success?
Quoting Sun Tzu, “If you know your enemy and know yourself, you need not fear the result of a hundred battles.” Yes, the biggest enemies lie within ourselves.
How many times have we not taken a trade simply because we hesitated? I am guilty of this. Upon closer inspection and deeper reflections, it dawned upon me that I didn’t trust my trading system entirely.
Stick to your system and you will be rewarded in due time. Of course, make sure your system has been backtested and know the conditions that it works best in.
Fear & Greed
This is a deadly pair of emotions. For the ill-informed or new trader, he may enter a position based on tips he receives from chat rooms, casual conversations, other people’s research etc.
The more experienced trader is not immune to this deadly concoction of emotions too. We chase trades that are over-extended or enter early hoping that the stock will move in our desired direction.
Fear can wreak havoc to our open positions too. We fear losing our paper profits especially when we see a couple of candles that are going against the direction of our trade. We either shift our stop loss or exit the trade immediately, which is often way too soon.
When we see the price of our stock shoot in the direction of our trade, we get happy and greedy. We tend to extrapolate the move, leading us to adjust our take profit level to be further than originally planned.
*Please note that the adjustment of our stop loss and take profit level require discretion (read experience).
Pride or ego – another deadly sin of all human beings. This stretches further than the need to predict and then be proven right.
Pride blinds us to facts and new knowledge. Our ego makes us believe that we know-it-all when all of us are always a work-in-progress.
Is there a solution to keep our inner demons in check? The best solution is to get a proper education on trading. With a solid foundation, it will be easier for you to discern and think critically.
In addition, you’ll be introduced to aspiring and experienced traders alike, who can identify with you and be of good support.
Swim Trading Resident Columnist