Sometimes trading can seem like an emotional rollercoaster. One day you’re sitting on the top of the world, the next day you’re in despair. When losing trades occur, it is easy for a trader to question their decision making process.
The trading life is certainly filled with highs and lows, however by placing expectations in their proper prospective a traders emotional life can smooth out those highs and lows.
Self esteem and trading success are two different issues. Trading is a very humbling experience. When drawdown and losses are occurring, it can take its toll emotionally on anyone. When I trade, I trade on expectations. Part of that expectation is understanding the facts about losses and drawdown.
Back testing your plans will help control these emotions that do not benefit you as a trader. It takes such experience, patience and skill to trade effectively/consistently, and so few new traders have the right approach, or think it is “easy money”. Almost every conversation I have with the active forex crowd goes along the lines of “I blew up my first three accounts because I just didn’t understand…etc, my money management was bad, and the market just went against me, but now I’m sure I’ve got the answer cracked…” I often wonder how long it will be before they’ve “blown up” again.
For complacency, I use the office “I know nothing about the market but I’m going to have a punt” indicator. When the market or individual shares starts to get near a top, the folk in our office who normally have nothing whatsoever to do with shares suddenly think it’s a good idea to open trading accounts and come and ask for advice. I’ve had an early warning because they’ve noticed our sector is up. When they start to pile in and sit in meetings checking their portfolios on their iphones I’ll start to bail!