Archive for the ‘Investment & Trading Psychology’ Category

Trading Quotable Quotes: Winning Is In The Head

"Learning to trade has been a long journey – with soaring highs and aching lows. In moving forward – or in circles – I repeatedly knocked my face against the wall and ran my trading account into the ground. Each time I returned to a hospital job, put a stake together, read, thought, did more testing, and then starting trading again.

My trading slowly improved, but the breakthrough came when I realized that the key to winning was inside my head and not inside a computer. "

~ Dr Alexander Elder
Book: Trading For A Living

On Capital Management

"… people go wrong all the time. Instead of trading as they should today, based on their money now and their rules, they trade based on the money they once had. They are clearly trying to recoup. ‘How much money you used to have has no significance. It’s how much money you have now.’ " implored Eckhardt
(referring to William Eckhardt)

~ Michael W. Covel
Book: The Complete Turtle Trader
The Legend, the Lessons, the Results

Trading Pyschology: Counter-Intuitive Approach

Folks who know me know that I always stress the importance of trading psychology, apart of capital and risk management.

One of the reason why trading turn out to be difficult for many people is that the tenet of cutting losses short and letting winners run is counter intuitive to how most people would think. When a new position is taken, and it not behaving correctly, one should close the position and get out as soon as possible, however, many people would choose to hold on to the position, hoping against hope that the position will improve so that they could get out at say, breakeven point. However, sometimes things can get out of hand and that is when an initial small loss starts to balloon to bigger and bigger loss if the position is not cut.

Conversely, many people tend to take small profit when it is made available to them. Well, there is a saying that says:”You can’t go broke taking a profit.” This statement, in my personal opinion, is very wrong. Yes, you could take profit, but no, definitely not at the first sight of seeing it. The whole idea is to let your profit runs as much as it could so that you maximise your return.

So, combining the two counter-intuitive trading approaches (to cut losses short and let winners run), you basically put together a trading plan that has a positive expectation which is important in any trading system.

Trade well.

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