Thanks to Reynaldo Soriano for the following guest post:
Do you remember the first time you traded? Perhaps you were young, took more risks, and had a strong desire for success. If you were like most people, you had unrealistic expectations about the financial resources, experience, and skill level that were needed to trade profitably, and you lost the game of trading consistently. At the beginning, you thought that you could just start a common online broker account and turn $3,000 into a lot of money. You probably did not hold this false impression very long. Soon, you discovered that you required a lot more capital than $3,000 to make good profits as a trader, and you probably found a trading platform that permitted you to make trades in real time. As you gained more knowledge and experience with the markets, you started learning how your perception and ideas were naïve. Sure, in hindsight, it seemed obvious that your ideas about trading were off-base. But, at the time, your beliefs seemed valid. Everything seems obvious in hindsight, and it all makes perfect sense.
We as human beings are all capable of optimism. The human mind is so powerful that if we have a strong desire for success, we see factors that just are not there. Our thinking can be one-sided and self-serving. We can convince ourselves that making money in the markets is easier than it really is. We can believe that high probability set‑ups are simple to identify, and we can convince ourselves that we will have confidence and relentless self-discipline when the time comes. In most situations this is not the case, because our expectations don’t always match reality.
It is crucial to acknowledge the ability of the human mind to create a fantasy world that builds up our ego. For example, if we want to win so badly, we start to distort reality. We can’t see factors clearly. In hindsight, though, we look back and think, “How could I have been so stupid?” It’s useful to grow a proper and balanced feeling of skepticism. Skepticism is not the same thing as pessimism. A pessimist falsely distorts reality to the point that he or she believes that even a reasonable plan is doomed. A skeptic is positively optimistic yet is also realistic. No trading plan is foolproof unless you have a foolproof emotional flow chart that should eliminate any type of emotions before, during, and after trading. The markets do not always cooperate with you. The winning trader is the person who questions a trading plan before pressing the trigger. He or she tries to anticipate what could go wrong, and thinks of ways to work around these potential drawbacks. Being a healthy skeptic can be difficult at times. Again, most people are normally unrealistic. They want to believe in miracles. They usually tend to believe that, if they can think and imagine it, then it will happen. But it is not that simple.
It is necessary to strategize in advance. Consider what can go wrong and make a plan for what you are going to do to come out unaffected should a trading plan fail. It’s useful to remember the basics:
- Manage risk and follow a detailed trading plan. With risk management, you can release some of the psychological pressure. Psychological pressure could produce denial. When your vision is clouded with denial, you are more prone to overconfidence. You may take unnecessary risks that do not make sense in the long run. When you manage risk by risking a smaller amount on a trade, or minimize risks through protective stops, you feel more freedom and can be in a relaxed state. You will be able to open up to new experiences and you will likely see issues with your trading plan before it is too late. You can make some revisions that will prevent you from making big losses. Similarly, if you think through a trade, you will increase the possibility of anticipating adverse events. As you mull things over, you will see how you could have given in to self-serving tendencies and distorted reality.
When trading, do not live your life with a feeling of regret. Things always look obvious in hindsight. But, if you plan and strategize in advance, skeptically anticipate what may go wrong, and take safety measures, you will increase your probability of winning.
By Reynaldo Soriano Jr
Author – “Why You Could Be Destined To Fail In Trading and How You Can Avoid It!”
Click Here To Order Your Signed Copy Today!
If you want to join our next Free Trading Event - Click Here