AVOID THEM LIKE A PLAGUE âTraders tend to believe that a method should be working in all market conditions at all times. When the method doesnât produce consistent results, the blame usually falls on the method or on the trader (in most cases, the trader blames the method). From there, comes the whole back testing and tweaking process in a tireless attempt to perfect/optimize the method. With each tweak comes a success period and subsequent failure, the trader eventually will conclude the invalidity of the method and move onto another method. This continues until the trader eventually blows out or gives up. This should sound familiar to you because it happens to everyone.â - Jea Yu Hello: Regrettably, profitable trading is an endeavor that goes against human nature, mainly because of these annoying flaws called emotions. Fear and greed compose the actions of the market. Youâd need to overcome the wrong trading biases mentioned below if you want to be a permanently victorious trader. 1. People hate losses. In fact, they dread losses more than they cherish returns. They prefer to cut their profits quickly if theyâre right and hold onto losers. They feel that a trade in a plus territory may go to a minus territory if they donât cut it, while thinking that a trade in a minus territory would eventually come back to a plus territory. Some pairs go in our favor by 40 to 50 pips and we truncate them and instead give enough room for losers. This is likened to watering the weeds and uprooting flowers. We tend to be conservative with profits and risky with losses. This would ultimately lead to unwanted results. Please let your winners run. 2. Traders tend to put more emphasis on the last losing streak they went thru more than the last winning streak they went thru. For instance, if a market speculator is using a certain strategy for playing the markets. If the strategy goes thru a period of losses - something normal for all trading strategies under heaven â the market speculator would be more saddened by the last period of losses without remembering a period of winnings she/he had with the strategy in the past. When using a good strategy, we tend to be subjective rather than objective. Because of the past losing period, the market speculator may change her/his trading rules or disregard the subsequent signals generated by the strategy. This would have adverse effect on the strategy results and the general performance of the market speculator. You make no mistake if you lose; you only make a mistake if you donât follow your trading rules. 3. Traders tend to follow only viewpoints and convictions that tend to support their wrong trading biases. For instance, loss trades that turned positive in the past would reinforce our decision to hold onto losers. The past loss trades that didnât turn positive would merely be âan exception.â This is detrimental to our long-term survival in the markets, for we tend to ignore warning signs from erroneous trading decisions; making us to be futilely and adamantly optimistic when running losing trades indefinitely. 4. We tend to praise our adeptness when we gain money from the markets, but we blame other people or the markets when we sustain losses from the markets. This is something that can lead to egotistic tendency, thus failing to objectively evaluate the factual reasons behind our success and failure in the markets. There canât be improvement if you blame others for your problems. Youâd need to stop blaming others and take your destiny into your own hands. You need to conquer yourself before you can conquer the markets. Nothing can stop you from improving your trading career if you accept responsibility for your failure and start working towards success. If itâs going to be, itâs up to you. 5. Excessive expectations and recklessness are rampant in the trading world. We tend to overestimate our ability, forgetting that weâre only human. We think we can achieve more positive trading results than we can realistically do. Itâs illusory to think we can predict the future movements in the markets. Itâs illusory to think that we can control the markets. Itâs fallacious to think that weâre superior to other traders or can perform better than them. Itâs fallacious to think we can predetermine the amount of profit we want to make on daily, weekly or monthly basis. This is one reason why many traders use big position sizes to attain big profits in a short period of time. They use high risk because they feel they can control the markets and they think the next trades they want to open must go in their forecasted direction. As pleasant as illusions are, they have one disadvantage: They tend to burst like a bubble. An argument in favor of these biases is that theyâre largely what most humans are prone to do and that itâs still possible to make money with them. Although this kind of argument might seem plausible, in reality, it isnât true. You can only make significant improvement in your trading when you understand these biases and avoid them like a plague. Iâd like to conclude this article with more quotes from Jea Yu: A. âSome of the most successful traders I know blew out their earlier accounts first. Itâs almost a rite of passage amongst the old school traders. The pain and agony they suffered is a constant reminder of what they did wrong. It forced them to reevaluate and re assemble their methods. It allowed them to identify when a bad situation is forming and they are wise enough now to avoid it. I remember reading an interview with a successful fund manager who claimed his success was based on making âeveryâ mistake possible enough times to know not to make them again. Traders donât have to go this route any more.â B. âPlease note that I am referring to the trading conditions, not the market index gains or losses. A strong or weak market is irrelevant to a trader. A tradeable environment is composed of follow through, trading channels and liquidity. Donât mistake a market being up huge or down huge as a tradeable market. Sometimes they do overlap but not always. The best litmus test is to take your best setups and see if they play out. If they fail back to back to back, then it tells you the market environment is not fertile. Donât punish yourself for this. Itâs not your fault. The only actions you need to take are to preserve your capital and your confidence levels which means quit for the day.â NB: Please watch out for my coming articles with these titles: âTraits of Successful Traders,â âHow the MACD Generates Good Trading Signals,â âA News Trading Strategy,â âAnalyze the Markets with the Aroon Indicator,â âA Brief Introduction to Point and Figure Charts,â âDoes High Hit Rate Work Always?â âMy Typical Trading Day,â âA Traderâs Trick Entry Technique â Sighting Golden Trading Opportunities ,â âMaking Money Out of Losses â A Blessing in Disguise,â âAchieve a Better Hit Rate with Gap Trading (Using the Logic Yourself),â âPlay the Markets Victoriously with Nano-cent Accounts,â âWhy Itâs Difficult to Do the Right Things in the Markets,â âHow to Identify a Sideways Market â Be Safe!â âA Negative Expectancy System â Pushing Against the Wind?â âTrading Signals,â âAn Intraday Moves Catcher â A Wealth Generating System,â âUnlock the Power of Everlasting Triumph in the Markets (Parts 2 - 12),â âHow to Handle Uncertainties in the Markets,â âThe Issue of Stops (Come Back! Oh Come Back!),â âA Hedge Funds Strategy,â âMy Hedge Funds Strategy Update,â âExperiment with Different Exit Tactics,â âMastering the Market Equilibrium Zones â A Time-sensitive Method,â âHow I Apply Risk Management â Part 3,â âA Simple Positive Expectancy System â Trading Effortlessly,â âTestimonies from My Subscribers (2),â âBest-case Scenarios â The Beauty of Trading,â âEffective Swing Trading in Forex,â âGap Trading Revisited,â â3 Recent Gap Trades,â âDeveloping the Right Attitude towards Losses - Part 4 (Losses Arenât Abnormal) ,â âThe True Holy Grail â The Long Sought for,â âForex Trading Vocabulary,â â Clarifying Some Issues â Part 6,â âNavigating Turbulent Markets â A Double Timeframe Analysis,â âBefore You Open that Trade,â âCogent Trading Biases,â âOverview of My Signals Strategies - Can You Become a Super Trader?â âWinning Trades, Losing Trades,â âThe Cost of Discipline,â âMonthly Market Review,â âUncertainty Has Become My Ally â An Interview with a Dogged Market Speculator,â âI Canât Express How Grateful Iâm to You!â âYearly Trading Update (2012) â The Big Picture,â âWhat Weâve Decided to Do in the Markets â Trend Following It Is!â âAnnual Trading Results (2012),â âMonthly Trading Report (December 2011),â etc. Your questions and opinions are highly welcome. Thank you. With best regards, Azeez Mustapha Forex Signals Strategist, Funds Manager &Coach
I-T-glo; ''traders hate losses'' Amen; but any business has exspences[losses]. Its worse when one has no idea why losses occur; its not so painful if a loss occurs in the paty of a plan-a well researched plan. Thats wisdom.
Youâve stated the issue quite well, but so have others So whatâs the solution - this is where the others have fallen way short ================================== A second question may be; How much will the solution cost...., but I'll give you the benefit of the doubt..., for now RN