The more I learn about trading the more I understand how “human nature” is at fault for all trading mistakes.
Why do people get into the stock market? Is it the dream of everyone to loose money and live a mediocre lifestyle? Not at all, the dream is to succeed financially and to provide for your family. No one that enters this world wants to lose money, no one that enters this world should think it’s a game. It’s a serious way to lose your life savings and your mental health, so be careful and learn before you find yourself in a lot of pain.
There are many emotions in the “human nature” that controls the way we live. The most important ones I believe in the Trading world are Greed, Pride, Envy, Fear.
Let’s start with greed; so many traders fail to respect this emotion and it WILL cause you to fail, EVERY time. The understanding or the lack of understanding I should say of this emotion will cause a winning trade to go drastically red on you if not addressed. Many people that trade is controlled by this emotion. They do not see a winning trade they see the P/L box and it gets the best of them. A Lot of traders will encourage NOT having a positions box visible during a trade as to protect that “human nature” to get the best of them. I personally HAVE that box open at ALL times to maximize my profits without letting the greed set in. We all have greed in us, there is no way to eliminate it, but you have to control it. So to contradict my greed I inject contentment into my equation. Once I’m contented I do not look back.
How does Pride affect your trades? You entered into a position because you’re confident it would follow the direction you want it to yes? Suddenly it doesn’t go as planned. Instead of cutting your losses quickly you convince yourself that IT WILL WORK, so you add more, and more until you’re so overwhelmed you’re yelling at your computer screen. Pride is controlled with stops, because the program can do something that you CANNOT, and that’s admit that you were WRONG. It’s very okay to be wrong. If you were right all the time you would have more money than you know what to do with it.
Envy is the mastermind of destruction. It makes people fall, it makes countries fall, it makes mankind fall. It weighs so heavy on your thoughts. There is a thin line between envy and desire that they often get intertwined and you’re not sure which side of the line you stand on anymore. What is it that you envy the most or desire the most when you’re in this world? Is it the success? the money? the fame? the knowledge? the love for computation of data? The vast majority will agree it’s money. Do not be afraid of saying it, why do you trade? THE MONEY. Now that you have admitted to that, you have to learn to distinguish between YOUR money and OTHERS money. They are very different, your money is based on your ability to trade, your financial situation and your control of emotions. THEIR money is your envy, and you have to eliminate that idea. Let the successful traders be an inspiration to you not a flaw in your character.
Once you have failed at a few of these emotions and all of us have. A new emotion will set in, Fear. Fear slows down your thoughts, slows down your judgement and causes you to loose even more. Fear will eat away at your account and will tie you down until you learn to release yourself from it. Fear will make a few losses seem like mountains to get over. You will be too cautious to push the buy and sell button and will never move forward. Fear will only get worse if you let it control you. It feeds on your weakness, it will encourage all the other emotions to join forces with it and will crush you. So figure out how to make the trades fear you, not you fear the trades.
As I write this blog it is apparent to me now that EACH of these emotions deserve a full page all by themselves, and if a more in depth understanding is desired please leave me a comment and maybe we can do a series on the “sins of trading”. As I write i also see some more emotions that needs to be added to this list.
I do hope this have been somewhat helpful to you.
I work along side an amazing trader and friend and I think that we can assist you in developing your skill and controlling your “human nature”. I urge you to take the step and join me at awesomecalls.