After many years as a trading instructor and coach, it becomes more clear to me every day that trading is not really about analysis, charts, stock picks, and executions. Trading is about what a human does when confronted with “fear” and “hope”. How we deal with those emotions will determine our success or failure, I believe, even more so than the methods we use to chose our trades.
There are four components of successful trading:
1. The technical aspects; your equipment, software, connection, etc.
2. The ability and skill to execute your decisions in a timely manner.
3. The method of choosing and timing your trades; your trading system.
4. The discipline to follow through on your own plans objectively, without hesitation.
One of the most frustrating problems I come across, the saddest and most difficult to solve, is when people have the first three components down and still lose money. They know what is right. They know when they should react, and how. They know the consequences of not reacting. But still their fears and hopes twist their reasoning, and consciously or unconsciously prevent them from acting on that knowledge. The last aspect of trading to overcome, and by far the most difficult, is your emotions.
If you are only correct 50% of the time, but can keep losses small in relation to the potential of your trades, you will be successful. Sounds simple right? Why then, are so many losing? Why do so many traders blow their stops, "holding and hoping" to the point of heartbreaking loss, against all common sense and logic? Why does fear, at times, grip many traders so tightly it prevents them from even entering a trade? Why do self-destructive tendencies enter our trading? And most importantly, what can we do to remove those bad habits and replace them with positive, disciplined trading habits?
Those are the questions that plague me, and I am so grateful that others are willing to explore those questions with me. This is an opportunity to address the critical areas of discipline and emotion in trading, and discuss the challenges of trading with people who truly understand, your fellow traders.
For more information contact Shawn Klug