“However, it is the nature and dynamic of this business to bring your human frailties and weaknesses to the front and center of your life. Trading brings you into a head-on confrontation with who you are, the deep-down "real" you.” – Joe Ross
Hello:
Joe Ross mentions the fact that the traders’ problems are beyond chart and fundamental analyses. The most serious problems facing traders are psychological and spiritual. Some of them are:
- Fear and/or feelings of inadequacy — lack of courage or self-confidence
- Selfishness and/or greed
- Pride and vanity
- Dishonesty and lying
- Lack of/need for wisdom
- Lack of/need for virtues that foster successful trading
- Questions about the morality of trading
- Need for the correct mindset
- An identity crisis
FEAR, the trader’s most dangerous enemy, is discussed in this article. If it’s ‘false evidence appearing real,” then why do most traders fall prey to it? It’s because many traders afraid to lose.
Napoleon Hill mentioned the 6 basic fears that ruin humankind: the fear of poverty, the fear of criticism, the fear of ill-health, the fear of loss of love of someone, the fear of old age, and the fear of death. He said that these fears should be avoided. People are always afraid of failure, afraid of shortages, afraid of lagging behind, afraid of committing blunders, afraid of trivial things (fear of a toothache, fear of the police, fear of water, fear of fire, fear of a race, fear of politics; fear of this, fear of that – all baseless and meaningless fears). Traders dread the idea of cutting a loss because a negative position might soon go into a positive territory, or they shudder at the thought of riding a winner because the market may swing their profit into a minus region.
Many traders find excuses, hiding behind prognoses, theories, programs, and mavericks with the purpose of concealing their fears.
One effective method of controlling fear is to keep your risk very low. If you risk 0.6% or 1% of your account per trade, you’d be able to keep calm whatever happens. With 0.6% risk, 4 losses in a row would only take away 2.4% of your equity. However many a marketer will show you huge profits over a short period of time – coming out of high risk. If anyone tells you of the possibility of making 10% returns per day, even per week, wouldn’t you question the possibility of losing 10% per day or per week? Wouldn’t your mind be at rest if you knew that you stood to lose 1% of your account? But, would your mind be at rest if you knew that about 10% - 50% of your account was at stake? Is it any wonder that 90% or more of day traders last only 3-6 months in the market? Most of the trading products or courses you often come across are from people with no credibility. Highly successful and popular institutional traders go for very small, but consistent profits. Below is what one of them has to say:
‘So if you want to trade other people's money, it's really important that you start generating your own track record, which means making 1% steadily per month, over long periods. If you can do that every month, then you'll be rich. It is not about making 10 to 20% in a month, the risk you need to take to be able to achieve that is way too high. …The people we're responsible to are our investors and the main thing for our investors is not to have any nasty surprises. They're happy to give up some of the upside as long as we never lose too much money. We need to make sure we are very defensive, even conservative, just try to make a little bit of money. Obviously with interest rates now at like 0%, even if you can make 8 to 10% per year, you haven't done a bad job.” – Lex van Dam
Recent trading results of another popular funds manager would be displayed next Friday: with great lessons. It’s a pity that some traders still make use of 0.1 lots for a thousand dollars; thus making it 1.0 lots for $10,000! Over-leveraging is the number one killer of trading accounts, and unscrupulous brokers who encourage this are subtly interested in your money since your loss becomes their gain. Controlling risk by exposing a very small percentage of a given portfolio per trade goes against how people tend to think (and they’ll always learn bitter lessons). People and markets are complex creatures, and things aren’t always going to go as you plan. It's just making sure that when you have that bad period that you just stay in the game.
Avarice is nothing but having misgivings about longing. The technique is to speculate with the awareness that we may fail but not being afraid of that. Misgiving is more serious than natural ability, hindering sensible conclusions. Nonetheless, rapid and satisfactory conclusions are mandatory for survival. Those who want to survive on the markets simply require courage, but invariably, that’s what we lack. Some skilled traders sometimes fall prey to fear, and they quickly get back on track. All of us abhor losses, but they materialize. We need to learn to live with that reality; hating being afraid. Fear must just not be given any chance. Not at all! Yet it occurs nevertheless. The best thing you could do is to stop trading when you realize that you’ve been gripped by fear, otherwise, you’d soon get deep in self-sabotage. Contrarily, fear is a psychological phenomenon meant to save us – but it’s destructive in trading. Fear will hinder your trading progress. If you don’t want to lose, you end up losing! If you want to survive, you need to stand up to your fear.
This article is concluded by a quote from some popular day traders:
1. “The markets offer a very unfavorable reflection of our inner psyche as we thrash our way to success. I, for one, am apt to throw tantrums when things don’t go my way; closely followed by deep pools of self-pity. My trading has shown me this, clearly. Generally, when people don’t like the reflection the market provides of their inner self, they derail, run away, and stop trading.” - Louise Bedford (a successful professional female trader)
2. “If you want to be a successful trader, then accept what you’re afraid of. Confront your fear. Most so-called traders don’t have any guts. Either the trade is successful or it’s just not. If not, then that’s the way it is and we lose our risk. That’s all that happens. Our pride may be hurt and we may be a little poorer, but you’ll see that you’ll continue to breathe. So what are you afraid of?” – Birger Schaefermeier
Thank you.
With best regards,
Azeez Mustapha
Forex Signals Strategist, Funds Manager &Coach
Senior Analyst
FX Instructor, LLC
Email: amustapha@fxinstructor.com
Yahoo! Messenger ID: saazalmu
Get my Forex trading signals at: http://www.fxinstructor.com/en/analytics/ituglobal
And my past articles are also available at: www.ituglobalforex.blogspot.com
NB: There is risk of loss in trading, but it is possible to be a successful trader.
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