Beliefs of Winning vs. Losing Traders ...........
October 5, 2005 .........
Today we look at the beliefs that separate winning traders from the rest of the masses. Ask yourself how many of these beliefs you currently possess, as well as what attitudes need some work.
Beliefs - Successful Traders
The markets provide a constant stream of opportunities.
If I miss an opportunity, another one will soon follow.
If the position is stopped out, then I need to reconsider the trade.
I trade one trade at a time, and stay in the present moment.
I seek a standard of excellent, not perfection.
Losing small is part of my trading plan to maximize profits.
Beliefs - Unsuccessful Traders
I must trade every day.
If I lose on this trade, I feel like a loser.
I must catch today's hot stock, though my system gave no signal on it.
I am unlucky.
I can't afford to lose anything on this trade.
My broker gives me lousy fills.
I can't go broke taking small quick profits.
When this loser gets back to even, I'll dump it.
Unsuccessful traders tend to dream up fantasies where the market provides them with future riches and solves all their problems. They transfer these fantasies to the individual stocks that they buy and have difficulty coping with the reality of being wrong. When events don?t live up to their hopes, they seek to ignore them. If a stock they purchased drops under their purchase price, they will not abandon the fantasy that their belief that the stock will make them money They choose winner that merely isn't in favor yet.
As a trader you have to move from a fearful mindset to a psychological state of confidence. You must believe in yourself, and you must use a strategy that builds confidence by taking bigger profits and smaller losses. The toughest part is continuing to take the trades after a string of losing trades, even if they are small. Psychologically that's where many traders will give up, because they are usually too quick in judging consecutive small losers as a system that is not working. What you may want to do is practice trading your system with what you consider a small amount of capital, where you care about the money but not so much that you will give up on the plan. This is in contrast to paper trading, which will fine for starters when doing initial testing, cannot simulate the psychological aspects of trading with real dollars. Your goal in this exercise is to take your system's trades, even through what may appear to be painful losing streaks. Just experience what it is like to keep trading through that drawdown and how good it feels to follow your rules through the good, the bad and the ugly days. You will instill in yourself a confidence to take trades that you never knew you had. You will foster both consistency and discipline as you progress through this exercise. You?ll know when it is time to move up to the real dollars you intend to commit, once your psyche is battle-tested through several drawdowns. Giving up is the only way you can lose. You win as long as you execute your trades, whether they make money or lose money in this exercise.
You have to move away from a mindset that stocks will make you rich and believe that your trading method will make you money. Being right or wrong on each individual trade does not matter. You have to be able to move through the adversity of losing trades and hold onto the faith that you will make money in the long run. This is why many individuals find it so difficult. People focus too much on the individual trades and hold unrealistic fantasies about them, while they cannot take responsibility for the decisions that go wrong. The worst traders take it personally.
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