EMOTIONS | THE SEE-SAW of GREED & FEAR
As your time spent with the market increases, you start to discover things about the nature of the trading game. Why they say its simple not easy. Why do 95% of traders end up losing money? Why is consistency so difficult to achieve? Can I even make consistent profits? Only after going through huge drawdowns, it gets embedded within your psyche. You realize that only you are to blame. Not the indicators, not the market, but your own...
{{ GREED }}
Greed can have undesired consequences on your trading if you let it take hold of you. These points I am going to mention are from personal experience:
1. Overtrading: I suffered from this for more than 3 months. Majority of my days kept ending in profits. I was confident in my trading. But the CHARGES kept adding up. At the end of the month, my net PL was deep red. Happens when "revenge" trading, trying to "win back" your losses.
2. Taking marginal setups: Taking setups that are not there in the first place. Happens when market is consolidating. You are faced with "boredom". There isn't a specific direction or trend. But your itchy hands start to take any setup there is.
3. Expecting more as "compensation": Again happens after string of losses. Now you feel the market "owes" you a winner. So, you keep holding to your trade beyond your exit plan. It suddenly drops. You end up booking less than 1:1. You end up frustrated.
4. Overconfidence: You are the "MIdas Touch" trader. Whatever you lay your hands on, it turns to gold. You feel nothing can go wrong now. Euphoria. You increase your lot size. You don't preset your SL. Happens after when you're on a win streak. The point when you need to be most cautious, you are most careless.
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{{ FEAR }}
Fear is vital for human survival, & for survival in the markets. One must not eliminate fear to succeed. He must rather acknowledge the fear in his mind, & proceed to take control of it. Of course, everyone here knows this is easier said than done.
But fear does make you do certain things that are detrimental to your trading success.
1. Under trading/ Hesitation: You pick & choose your trades. You only take the trade that "feels" right to you. If there are 3 trades you identified based on your setups, you take only 1, making sure everything is "perfect". What happens? The trade you took turns a loser, & the other two - winners. Happens on losing streaks. You feel the market is "against" you. So you trade less so as not to "anger" the market.
2. Missing Setups : You refrain from trading altogether. Happens when your losses have piled up. Although a break from trading here & there is necessary, not trading is not the solution.
3. Leaving money on the table: "Ill take what I can get" mindset. Happens when you're impatient. You so desperately want to end the day with profits. Maybe you want to post the screenshot on instagram. But the low RR that you're booking will NOT be able to cover your loss days when they come.
4. Self-doubt. You are afraid of the market. You feel like a bad omen. A "Panauti" in Hindi. You convince yourself that any trade you take, will be a loser. A string of losses can create self-doubt that is very difficult to eradicate. Or maybe you have something going on in your personal life that is affecting your trading & causing self-doubt.
{{ PLANFULNESS }}
I came across the term "planfulness" in the book "Psychology Of Trading by Dr. Brett Steenbarger". He asserts this to be the solution to deal with trading emotions. Being planful & rule-governed. I am trying to incorporate pure planfulness in my trading. This is what planfulness is to me:
1. Trading ONLY your setups: Not something that "looks" like or "feels" like your setup. Even if it is 99% similar to your tried & tested setup, you must NOT take it. No making up new setups on the spot. Only back-tested ones. If there are NO trades available for your setup, sit & WAIT.
2. Trusting the setup's expectancy: The term "expectancy" is elaborated in the book 'The universal principles of successful trading -by Brent Penfold'. In brief, as long as your setup's expectancy is positive, that setup is money-making. The point here is not to get affected by the outcome of a single trade, but judge your results based on a sample size of trades. You may experience a string of losses, but as long as your expectancy is positive, you will be in net profit over a sample size of trades.
3. Taking ALL instances of the setup: Straight from Mark Douglas' "Trading in the Zone". if there is a trade based on your setup, you take it. Period. Only then can you judge the strength or weakness of your setup, & change it if need be.
4. Proper exits & SLs. I am sure there are a no. of trades where you exited, only to see the trade shoot up far beyond your take profit level. Again planfulness dictates that you stick to your RR no matter what. That is the only way to move forward. You cannot predict whether your current trade will shoot to 1:20 RR or not. But if you wait, you will end up booking less than 1:1.
5. Trading in the Zone: "The best loser is the long-term winner". Acclimatize yourself with loss. As long as you're not ready to accept loss, you will always be out of the zone. I am trying to do this myself. Hopefully we all succeed & get in the Zone together.
Thank you:)
{{ GREED }}
Greed can have undesired consequences on your trading if you let it take hold of you. These points I am going to mention are from personal experience:
1. Overtrading: I suffered from this for more than 3 months. Majority of my days kept ending in profits. I was confident in my trading. But the CHARGES kept adding up. At the end of the month, my net PL was deep red. Happens when "revenge" trading, trying to "win back" your losses.
2. Taking marginal setups: Taking setups that are not there in the first place. Happens when market is consolidating. You are faced with "boredom". There isn't a specific direction or trend. But your itchy hands start to take any setup there is.
3. Expecting more as "compensation": Again happens after string of losses. Now you feel the market "owes" you a winner. So, you keep holding to your trade beyond your exit plan. It suddenly drops. You end up booking less than 1:1. You end up frustrated.
4. Overconfidence: You are the "MIdas Touch" trader. Whatever you lay your hands on, it turns to gold. You feel nothing can go wrong now. Euphoria. You increase your lot size. You don't preset your SL. Happens after when you're on a win streak. The point when you need to be most cautious, you are most careless.
____________________________________________________________________
{{ FEAR }}
Fear is vital for human survival, & for survival in the markets. One must not eliminate fear to succeed. He must rather acknowledge the fear in his mind, & proceed to take control of it. Of course, everyone here knows this is easier said than done.
But fear does make you do certain things that are detrimental to your trading success.
1. Under trading/ Hesitation: You pick & choose your trades. You only take the trade that "feels" right to you. If there are 3 trades you identified based on your setups, you take only 1, making sure everything is "perfect". What happens? The trade you took turns a loser, & the other two - winners. Happens on losing streaks. You feel the market is "against" you. So you trade less so as not to "anger" the market.
2. Missing Setups : You refrain from trading altogether. Happens when your losses have piled up. Although a break from trading here & there is necessary, not trading is not the solution.
3. Leaving money on the table: "Ill take what I can get" mindset. Happens when you're impatient. You so desperately want to end the day with profits. Maybe you want to post the screenshot on instagram. But the low RR that you're booking will NOT be able to cover your loss days when they come.
4. Self-doubt. You are afraid of the market. You feel like a bad omen. A "Panauti" in Hindi. You convince yourself that any trade you take, will be a loser. A string of losses can create self-doubt that is very difficult to eradicate. Or maybe you have something going on in your personal life that is affecting your trading & causing self-doubt.
{{ PLANFULNESS }}
I came across the term "planfulness" in the book "Psychology Of Trading by Dr. Brett Steenbarger". He asserts this to be the solution to deal with trading emotions. Being planful & rule-governed. I am trying to incorporate pure planfulness in my trading. This is what planfulness is to me:
1. Trading ONLY your setups: Not something that "looks" like or "feels" like your setup. Even if it is 99% similar to your tried & tested setup, you must NOT take it. No making up new setups on the spot. Only back-tested ones. If there are NO trades available for your setup, sit & WAIT.
2. Trusting the setup's expectancy: The term "expectancy" is elaborated in the book 'The universal principles of successful trading -by Brent Penfold'. In brief, as long as your setup's expectancy is positive, that setup is money-making. The point here is not to get affected by the outcome of a single trade, but judge your results based on a sample size of trades. You may experience a string of losses, but as long as your expectancy is positive, you will be in net profit over a sample size of trades.
3. Taking ALL instances of the setup: Straight from Mark Douglas' "Trading in the Zone". if there is a trade based on your setup, you take it. Period. Only then can you judge the strength or weakness of your setup, & change it if need be.
4. Proper exits & SLs. I am sure there are a no. of trades where you exited, only to see the trade shoot up far beyond your take profit level. Again planfulness dictates that you stick to your RR no matter what. That is the only way to move forward. You cannot predict whether your current trade will shoot to 1:20 RR or not. But if you wait, you will end up booking less than 1:1.
5. Trading in the Zone: "The best loser is the long-term winner". Acclimatize yourself with loss. As long as you're not ready to accept loss, you will always be out of the zone. I am trying to do this myself. Hopefully we all succeed & get in the Zone together.
Thank you:)
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