Brett Steenbarger no longer publishes his TraderFeed blog, but the archives are available. They contain a treasure trove of sound advice for traders. His advice tends to be directed to short-term traders, but the suggestions and guidelines are sound for us as well.
"A reader notices that he has been
fading strong moves, much to the detriment of his account. What can he
do to stop himself from being stubborn?"
Brett's (shortened) reply: Many times stubbornness comes from trying to
be right: investing one's ego in catching market highs or lows.
The opposite of stubbornness is accepting the inevitability of losses. If you mentally prepare for losing, you will be flexible in exiting losing
positions and moving into good ones.
Emotionally prepare yourself for losing
by viewing stop loss points as
concrete action plans. Mentally rehearse those
plans. Visualize yourself taking those losses if the stops are
hit. Make yourself familiar with a scenario and make yourself
cope with it and accept it, and it will lose much of its threat value.
View every trade as a
hypothesis, not a fixed opinion or conclusion. If you frame a trade
idea as a hypothesis, you immediately open yourself to the possibility
of the hypothesis being wrong. That helps you plan "what-if" scenarios
for how you would respond if the hypothesis is not supported.
Similarly, the what-if scenarios can help you become more aggressive in
trades that do find market support.
Developing traders should trade small enough
that inevitable losses won't hurt the account too badly. If you make
losing painful, you'll try to avoid losing…and that will keep you in
bad trades well beyond any rational stop level.
This post it's filled with solid advice. But, to me the final sentence tells the story. Do not trade so much size that a loss may become painful. I usually give that advice for the purpose of preventing a huge loss on a single trade. But Dr. Brett offers additional insight by telling traders if the loss becomes too large, there is a good possibility that you will not be willing to accept that loss. That means not exiting the trade and risking a loss large enough that your trading career may be jeopardized.
Losses are not enjoyable, but large losses are destructive. The idea is not to enjoy losses but to recognize they they occur often. Manage risk, manage money, trade appropriate size – and your chances of success increase dramatically.
Avoid bad situations by imagining what can go wrong with the trade. Then consider how much is at stake if that unpleasant situation occurs. Can you handle that loss both emotionally and financially? If not, the position size is too large.
I can vouch for the destructive power of stubbornness.