Overcoming the Psychological Aspect of Trading:
The general public is drawn to the stock market because of the limitless opportunities it can provide, but unfortunately that tends to attract individuals with a gambler’s mindset. Merely throwing darts, however, won’t result in consistent success. As many amateur traders come to realize shortly after getting started, there’s a major difference between winning on some trades and being a consistent winner over time. The lack of barriers to entry in trading makes it both attractive and dangerous. Almost anyone can open up a brokerage account and start buying securities with a few clicks. And to make matters worse (depending on your viewpoint), they have a 50% chance of being right on their first trade. If they lose, it can scare them away from the markets forever. But if they win, it can give them a false sense of confidence and security. Without much time and effort, they realize they can make quite a bit of money trading stocks and begin cultivating wild expectations for their future lifestyle and income (if they haven’t already).
The reality ends up hitting them further down the line. It might come after experiencing a series of bad trades (or sometimes even just one) that ends up blowing up their entire account. No system or trading edge was ever established, risk management was never a consideration, and the psychology aspects of trading never crossed their mind. All three are critical to achieving long-lasting success, but I’d argue that psychology is the most important of them all. Without the right state of mind, even the most robust system is doomed for failure. It’s without question emotions have a way of creeping into our trading decisions. It’s just human nature. But we have to have a grip on them and be able to follow rules and execute trades properly. Some people might have a predisposition for better self control and adaptability, but those are skills that anyone can acquire and build upon over time. Acting impulsively and feeding into fear, greed, and frustration over-and-over again only reinforces negative patterns of behavior. If you come into the market with a ton of insecurities, denied impulses, bad habits, and unrealistic expectations, then you will almost certainly experience misfortune. Your state of mind can make all the difference in your overall trading success or failure.
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