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There is a common sequence of events that most traders go through during their development. This begins when many of the strategies that the trader is learning begin to come together and the trader begins to see the light. This can happen slowly with a cautious trader who has been paper trading or playing with a small share size. This can happen for aggressive traders as they start to have some big numbers in profit on some of their better days. However, while the trader begins to feel good, there usually are some lingering problems. While the light seems to be coming on, the account is not growing. It seems that every time some progress is being made, something happens that stops this progress and the account does not grow. It is 'one step forward, and two steps back'. If this is something that you can relate to, you are not alone.

 

Spending time in this area to understand this process is very important to your development as a trader. If you review your records you will likely find several good trades throughout the week, and then a bad trade. One so bad it really sticks out. So bad, it erases all the hard work of the prior gains that you were so proud of. It may show up as several profitable days and then one day that erases all the prior gains. If this is the problem you are having, there is good news and bad.

 

The good news is that you are now doing well with the 'technical part' of trading, and now have to deal with the psychological part. The bad news is that you are now doing well with the 'technical part' of trading, and now have to deal with the psychological part! Psychology is not an easy thing to deal with. The answer? First, it's self awareness. It's identifying the issues at hand as being psychological. Once we've admitted we have the problem, we must build and change our Psychology so that it is conducive to making money in the markets consistently and without fail.

We teach many procedures that traders can take to help their progress at this point. Use a trading plan, keep detailed records, and track the strategies you use. Print charts of your trades to analyze your discipline, trading plan, and strategies. Make a plan to eliminate recurring problems. Use money management that prevents catastrophic trades or days.

 

Once the trader eliminates their 'demons', they will likely see an improvement in their trading. Unfortunately, that is not the end of the psychological issues. Sometimes a trader uses all of the above tactics to make great improvements and even become successful, then gets 'over confident' with their new success and abandons everything that got them where they are. The road will always be full of new challenges, the traders that thrive have on ongoing plan and a commitment to patience and discipline.

 

Jared Wesley

Contributing Editor

Interactive Trading Room Moderator

Gap, Intra-Day and Swing Trading Specialist

Instructor and Traders Coach

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While the purpose of the original post is obvious, one of the final comments caught my attention

 

"Once the trader eliminates their demons".....

 

I think we all would like to believe that we can permanently vanquish our problematic behaviors, but experience suggests otherwise.....the reason this is so....is that our "demons" consist of our innate human emotional responses, among them our fears and our greed. What I have found over time is that these basic emotions can be managed by those who take the time to really understand the impact their emotions have on their professional (and personal) success. THIS is why when I start a class, instead of just taking anyone with a checkbook, I actually interview prospective students to find out how they view this world, and what their concerns are....without this step, its like having a tailor take a coat off a rack, regardless of the size, and asking you to try it on, "I'm sure it will fit".....and then (when it doesn't fit), telling you "that's the style they are wearing these days" or "it looks good on you".....lol

 

The question(s) for me (and I assume for others) are......does this particular business, have what I need to improve, and move closer to my goal (does this coat really fit me)...and (in both cases) is it worth the cost?

Edited by steve46

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    • By inthemoneystocks
      One of the most important reasons why traders take big losses is because they often fail to recognize when a trade has gone wrong. You see, stopping out of a trade is probably the biggest fault of traders and investors. Often, this happens to young and inexperienced traders and investors, but I know many veteran traders and investors that struggle with this as well. Early in my own career I struggled with stopping out of a bad trade myself, so I can sympathize with this problem. 

      The problem with taking a loss is really two fold. First, the trader has to admit that he is wrong. As you all know, as human beings we all hate to be wrong. The ego simply gets in the way and we all want to always be right all the time. The first secret in this business is to check the ego at the door. The market does not care about your the color of your skin, religion or anything else. It will move in the direction of the money and that is the bottom line. Once a trader or investor goes into what I call 'hope mode' the trade is over. I'm sure everyone has been in this position at one time or another. Simply put there is no room for ego or hope in the stock market. The market is always right and there is no reason to fight it. 

      Here is the second problem with taking a loss, it hurts. Pain and pleasure are the two reasons why humans do anything at all. As a human being, we are always looking to have pleasure and avoid pain. Well, losing money is painful and many people would rather simply hold a losing equity than lock in a small loss and move on. I cannot tell you how often I see a trader hold a losing trade only to see the position move further out of the money. Many years ago I watched a day trader blow up a $200,000 account in a single day averaging in on a bad day trade. To this day I can remember the look on his face as his money vanished in thin air. Believe it or not, this trader could have exited the position with a $500.00 loss, but instead he kept averaging in and fighting the position until he was wiped out. As a rule, once you have your full position you should never average in on a trade. At that point, it is critical to know where your max loss is going to be and stop out if that level is breached.

      Now when should we stop out? The answer to this question is not that simple, but here is what I personally do. I always place my stop loss below an important breakout or pivot on the chart. You see, prior breakout or pivot levels are usually defended when retested. After all, this is usually an area where institutional traders and investors got involved, that is why there is a pivot low or high on the chart to begin with. If that level is breached on a closing basis then I will move out of the position. So If I took a trade based on a daily chart pattern then I will usually check the daily and weekly chart levels. If there is a major pivot on the weekly chart then I will use a week chart close as my stop out level. While this method may not be perfect, it has saved me from much bigger losses when I have been wrong.



        Nicholas Santiago
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      Hello, My name is trading4life.
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    • Thanks for your suggestions man!! Our own decision surely makes us or breaks us. Thanks once again, buddy.
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