Ted is just starting out and is putting everything in emotionally into this, his tenth trade. He’s new to trading but he’s optimistic that this one trade will show that he is a good trader, that he knows what he’s doing and will establish him. He has put it into his head that this one trade is critical as a demonstration of his career as a trader.
Ted is not unusual and indeed anyone starting out in any new career focuses on ensuring that each action that they take or that the effort they make has a positive outcome and demonstrates their skill. It is a normal and healthy need for success and the need for it to come early on, is great as it helps reinforce our self-belief as much as showing others that we can do it.
On the other hand, not succeeding is an emotional drain and affects our thinking and ongoing actions for quite some time. Or it can do. However it is essential to keep things in perspective and to see the bigger picture and thus remember that the start is the training ground for future success, not the point that success has to occur.
When looking at trading, the issue is to ensure that the as a beginner, you understand early on that every single trade is just a step and should not carry any special significance. It is something that the experienced trader knows and whilst all energy and focus is put into identifying and assessing the opportunity, it is simply another trade. Therefore the perspective is retained and if that trade doesn’t convert into profit, the let down isn’t as great emotionally, enabling the trader to just move onto the next one.
There is a clear benefit of such an approach as the failure of one trade to return a profit will not dent your ego. The perspective of “it doesn’t matter, there’s always another trade”, keeps the balance and thus reduces the impact on your energy.
Indeed you become free to keep focused on alternative opportunities, keep being assertive and creative in your strategy and objectively view the market, the market movements and keep moving forward. So even if the trade is not going as planned, you can use your clearer head to hold onto the position until you have worked out what the best exit point really is and if there is in fact a hidden opportunity buried within.
Management of perspective however, also presumes risk management is done correctly. If you put too much into one trade financially as well as emotionally, then your ability to keep perspective is reduced dramatically. Put a stake of whole months’ salary or 20% of your capital or some other such high number and the outcome of the trade truly does become more critical.
Convincing yourself that it doesn’t matter, that it’s not significant is clearly not going to work and you will be overcome by stress. If you are a novice trader then the ability to cope with this level of pressure will be even lower than the more experienced. Even the experienced novice though will struggle to cope.
What it reinforces is one of the golden rules of trading, to limit your risk on each individual trade. The novice will want to rush into the larger profits but to make gains slowly but surely over many trades is going to ensure you end up further ahead than on the single success.
Fundamentally beginner traders must remember that whilst the basics of trading seem simple, it is a skill that takes time and experience to spot real opportunities, to establish strategies that ensure success most of the time. Trading success is built on percentages and whilst the temptation is to start out looking for those few trades that will turn a huge profit and set us up for life, it is totally unrealistic.
The market place is replete with stories of those that staked their house and won but there are more stories about those that then went on to lose their home. If your intention is to have a long term career as a trader, then make sure you never lose perspective of what it is all about and that no one trade should make or break your account.
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