Not really a day goes by when I’m not asked to counsel a new dealer on trade management and realistic expectations. Expectations are not projections or odds. Expectations are not a statistical or analytic dog. Expectations are emotional and psychological, and trading mindset should be the main target for a new dealer. Trading psychology will determine your failure or success over the long term, period. In the following paragraphs, I will cover some core mental areas you will need to be familiar with to be a successful trader. fusionex
The first trading psychology subject I will discuss is proper trade management. Exactly what is proper investment management? Basically this:
Definitely Never risk more then 5% of your accounts balance on anyone investment. This means that your maximum Stop Loss on any one trade should not exceed 5% of your total account balance. For instance, if you had a $1000 bank account, 5% of $1000 is $50. This means that your maximum stop reduction should not exceed 55 pips assuming you are trading one mini agreement with a value of $1 per pip. We realize new Forex investors every day risking 20, 30, even 40% of their account on a single control. With that much risk, and four losing investments in a row, likely to get rid of your account. You won’t last long taking wild risks like that, and the psychological harm will be permanent. Thus minimize risk. Use five per cent as a maximum risk threshold. Personally, I associated risk no longer then 1-3% on a single trade. If you have a larger bank account, you should follow the same rule, no conditions. Regardless of good a dealer you are, it’s not unheard of to have 6-8 losers in a row. No one loves it, when you keep with a 1-3% risk limit, expect and become emotionally prepare for it, it can roll off your rear rather than breaking your nature.
MANAGES TO LOSE
Many traders long for Van Helsing’s corner to raise when this hellish beast shows it soul-stealing teeth: Losing deals! A new trader will usually feel ashamed after occuring a losing trade. This individual feels that he has made an error and surpasses himself up over it. Penance does not good in this life, so admit your trading sins, take care of to sin you can forget, but do not scourge yourself. Listen to the Real truth: Losing trades are part of the game and are to be completely expected. Forgive yourself, and go forward, but do not surrender. It is the trading journey that overall will be correct, not each individual step. And so accept each misstep. Such as a shopkeeper paying rent to keep his store start, losses are part of the expense of doing business as an investor.
Latest traders sometimes perform like irritated scientists, adopting and rejecting theories and models randomly. But real science not only includes patience, but requires it. A new trader may try a new system briefly. If perhaps it fails a few times, will say “This doesn’t work” and dispose of it, the same way an impatient scientist might if taking a look at an ineffective chemical substance for a cure for a disease. If it turn up useful info, then it must be wrong, I often notice. Perhaps however, the noticed timeframe was too simple, or simply the compound was impure, or contaminated. This kind of same mistake is often made in trading. A system must be applied more than a sufficiently long period of time, and it must be applied exactly minus emotion. I often hear “Hey Steve, We have a great trading system. Watch me… I am just going LONG here of course, if it works… I’ve proved to you personally this is a great system, blah”. To these special, excitable, impatient traders, We have some hard-won advice for you: When a system wins six times in row or loses 6 times in a line, it proves nothing! This doesn’t say anything about the significance of the trading system. Usually do not judge a method over a few investments. Basing conclusions on statistically invalid data sets (too small, too few trades) is one of the biggest psychological mistakes the new or impatient investor makes. Trading is an art which must be mastered over time. Everybody must serve his time in the trenches, and so must every system. Every trader starts as a losing trader, and every system starts by being insufficiently tested. Several traders lose for a few months while others lose for years. Some systems improve two trades, some may go for five hundred or so. This is why most traders leave “trading” after such a short period, and why systems come and go. Stamina, record validity, and psychological prep are what alllow for a successful long-term trading profession.