How Your Ego Can Impact Your Trading Success:
If you can’t admit that you’re wrong, you won’t find success as a stock trader. Just as important as capturing profits is being able to limit losses. The fact of the matter is that no trader, not even an expert, can be right 100% of the time. In fact, many of the best traders are only on the winning side of trades about 50-75% of the time. What allows them to profit is their ability to put their ego aside, admit that they’re wrong, and cut losses quickly. Hoping for a comeback is one of the most popular mistakes new traders make.
People tend to forget just how much of a role psychology plays in trading, but controlling emotions is critical. When a position is increasing in value, people don’t like to sell out of it in fear of missing out on even more gains. And when a position is decreasing in value, they don’t like to sell out of it either because they don’t want to take the loss – instead, they hope for a comeback. This is where trade plans and rules become critical. They can help take most of the emotion out of trading and leave you prepared for any situation, whether the stock price goes up or down. In the end, stock trading is one of those pursuits where it’s impossible to be perfect. Just like the best baseball players of all time only succeed every 3 or 4 at-bats out of 10. But the overall key to success is to go in prepared, cut losses when necessary, and don’t let your ego turn you into a consistent Bag Holder.