As mentioned previously I've become interested in trader psychology. This is an entirely new field for me, and professionals already blog in this area. I have no credentials to compete, nor do I intend to compete. However, I believe that discussing some of their ideas can only improve our understanding of how we trade, and thus, improve our results.
Although no longer an active blog, Dr. Brett's TraderFeed is still my favorite place to find nuggets worth sharing:
What stresses traders out: "When
traders face high levels of emotional stress over time, the result can
be a form of burnout. Overwhelmed by obstacles and challenges, traders
shut down. They stop learning, and they stop taking the actions needed
to move their progress forward."
It's difficult to be trading under stress. And it's not likely to be a profitable time. Yet that's when we need to be at our most alert – to defend our assets and be certain that we are not over-trading, trading too much size, or ignoring risk.
When suffering from burnout, it's easy to get bored and take a 'let's go for it and take my chances' attitude. When in danger of not performing at your best, it is important to take a break from trading. You don't have to go on vacation. Perhaps an afternoon bike ride will be enough to restore your energy.
Signs of psychological burnout: "Very often, it's
not just the stresses of markets that overload traders; it's also the
stresses that traders can impose upon themselves. It's easy for
achievement-oriented traders to become their own worst enemies when
they're not making money: instead of focusing on constructive
improvements, they beat up on themselves and add self-imposed stress to
Can you imagine the frustration of someone who is on a losing streak who feels the desperate need to earn a big profit from the next trade? I hope you are never in that position. When under stress, if you cannot back off and get away form trading for a short (or longer) time, then it's mandatory to your mental health and future earnings power to cut down on trade size.
That's the simplest and most direct method for cutting risk and stress when trading. And when you have less pressure, you are more likely to make good trading decisions. That's far more important than risking your trading career in an effort to go for one big win.
Don't undervalue the risk of ruin. It's difficult for traders to find another stake when they blow out. When under stress, it's far better to take a break than make a big effort (under even more stress) to recover losses.
Keep your eye on the ideal: "It is far better to trade less often
and trade exquisitely well than to trade frequently and haphazardly."
There's nothing to disagree with in that statement.
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