What Do Successful Traders Have in Common with Those Who Don't?
What Do Successful Traders Have in Common with Those Who Don't?
Investing online can be done in a variety of ways. Although I could provide you with an exhaustive list, these are the most typical types of investments that have proven effective. Here are a few definitions of "know how to invest":Trading in optionsLooking ahead, the tradingExchange of currenciesTrading stocksLooking ahead, the tradingForex trading, often known as dealing in foreign currencies
Let me tell you a tale to set the stage for my online investment assessment... About twenty-five years ago, on a lovely late-spring afternoon, two young men were both graduated from the same university. The two males were strikingly similar. They were both outgoing and full of aspirational goals for the future, making them exceptional academics.
I will use a day trading platform to introduce these two college grads to online trading for the sake of this demonstration. Each person receives a present that includes the identical online investing risk capital, a daytrading platform, and a trading system with specific rules for entering and exiting trades.
Surprisingly, the distinction exists. One day trader lost everything within a month, while the other made 20%.
Do you ever find yourself wondering, like I do, what factors into people's trading decisions to such a degree? Intelligence, talent, and devotion are not necessarily innate. That one desires success while the other does not is not the issue.
In terms of brain psychology, there is a distinction. More important than the strategy you choose or the specifics of your daily practice will be your mental attitude if you want to succeed at trading online.
Here are a few solid instances:When one character views a half-empty glass, another character views the same cup as half-full.Problems can be seen as either stresses or challenges, depending on the person you ask.Some people may view a stormy sea as an exciting roller coaster ride, while others may view it as a hurricane threatening imminent destruction.
This has been found by others besides myself.
American psychologist Dr. Van Tharp, in his book "Trade Your Way to Financial Freedom," delves into the importance of mental strength for successful trading. His trading strategy is based on three main ingredients.
According to his graph:The system only accounts for 10%The success rate of money management is 30%, andThe study of mental processes and emotional states accounts for 60%.
Ultimately, Tharp found that a trader's mental makeup is the most important factor in his success.
But what precisely is mental psychology?
If you are a trader, your investment selections might be influenced by emotions like fear, greed, vanity, pride, hope, envy, and denial. Your thoughts and emotional responses to any given event are a part of your psychological make-up. Your goal in the market should be to maximize profit while minimizing risk, but rational thought and rational emotion seldom make this a reality.
As an example, traders who are not good at managing their thoughts and emotions often make poor trading decisions, like the rookie faux pas of hanging on to a lost position in the hopes that it will turn around.
It is a common error to be afraid of losing. People are wired to appreciate a setback. Consequently, the anguish of losing $1 is nearly double that of obtaining $1. Most traders would cling on to a losing stock even though it is falling in value because they are afraid of losing money. The old trading saying goes something like, "Cut your losses and let your profits run." This impaired judgment obviously goes against that.
Unlike rational investors, emotional ones do not distinguish between paper losses and actual losses, thus they continue to maintain losing assets. Other types of irrational conduct are also displayed by investors.
The EXAMPLES below are seeing wins as inevitable and losses as the result of pure chance.
All of this is only scratching the surface. One of the other terrible things that might happen when you trade is that your thoughts and emotions will not be in the right place, which can have a disastrous influence on your trading.
This is the first stumbling block for novice traders, who often find themselves rapidly losing control of their funds in the markets. The majority of traders lose all of their initial investment in the first year. So, it is clear that your thoughts and emotions have a significant impact on your trading success or failure. However, are you aware that these two aspects constitute separate domains?
Wow, that is cool!
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