Your feelings have an immediate impact on your account equity. You may have a brilliant trading system, but if you feel frightened, arrogant, or upset, your account is sure to suffer. When you recognize that a gambler's high or fear is clouding your mind, stop trading. Your success or failure as a trader depends on controlling your emotions.
When you trade, you compete against the sharpest minds in the world.
The field on which you compete has been slanted to ensure your failure. If you allow your emotions to interfere with your trading, the battle is over. You are responsible for every trade that you make. A trade begins when you decide to enter the market and grids only when you decide to take yourself out.
Having a good trading system is not enough. Most traders with good systems wash out of the markets because psychologically they are not prepared to win.
Markets offer enormous temptations, like walking through a gold vault or through a harem. Markets evoke powerful greed for more gains and a great fear of losing what we've got. Those feelings cloud our perceptions of opportunities and dangers.
Most amateurs feel like geniuses after a winning streak. It is exciting to believe that you are so good you can bend your own rules and succeed.
That's when traders deviate from their rules and go into a self-destruct mode. Traders gain some knowledge, they win, their emotions kick in, and they self-destruct. Most traders promptly give their "killings" back to the markets.
The markets are full of rags to riches to rags stories. The hallmark of a successful trader is his ability to accumulate equity.
You need to make trading as objective as possible. Keep a diary of all your trades with "before and after" charts, keep a spreadsheet listing all your trades, including commissions and slippage, and maintain very strict money management rules. You may have to devote as much energy to analyzing yourself as you do to analyzing the markets.
A loser never knows why he loses. If he knew, he would have done something about it and become a winner. He keeps trading in a fog. A loser tries to manage his trading the way an alcoholic tries to manage his drinking.
Losers try to trade their way out of a hole. They switch trading systems, buy new software, or take tips from a new guru. They act out a rescue fantasy - a charming belief in Santa Claus. Their desperate belief in magic solutions helps many advisors sell their services to the public.
When losses mount and equity shrinks, a loser acts like an alcoholic threatened with an eviction or a firing. A loser grows desperate and converts outright positions into spreads, doubles up on losing positions, reverses and trades in the opposite direction, and so on. Losers get as much good from these maneuvers as an alcoholic who switches from hard liquor to wine.
A losing trader careens out of control, trying to manage the unmanageable. Alcoholics die prematurely, and most traders bust out of the markets and never come back. New trading methods, hot tips, and improved software cannot help you until you learn to handle yourself. You have to change how you think in order to stop losing and begin your recovery as a trader.
Losers get drunk on losses; they're addicted to losses. Traders prefer profits, but even losses provide plenty of excitement. The pleasure of trading is very high. Few losers are actively trying to lose - but then few alcoholics are consciously trying to end up in the gutter.
A loser keeps getting high from trading while his equity shrinks. Trying to tell him that he is a loser is like trying to take a bottle away from a drunk. A loser has to hit rock bottom before he can begin to recover.
