Psychology is primarily about managing your three main emotions: hope, greed, and fear.
1. Managing Hope
Hope,manifests itself when you find yourself hoping a trade will not be a loser, hoping your trade will be a winner. Hope is the lesser evil of the three psychology hurdles. Hope is the feeling you have before being stopped out of a trade, and is usually magnified when the market is a few ticks away from your stop! You're hoping to earn a winner because you're sick and tired of losing. You're hoping you don't lose again, because if you do, it'll hurt the account.
Hope seemsfrom two aeras-- not applying correct money management and not konwing your expectancy. Trading in the dark. The solution is to stop trading and to get your risk of ruin to down to 0 percent. Developing a simple, objective, and independent methodology will give you a strategy with a positive expectancy edge. Combining sensible money management with a positive-expectancy methodology will deliver you a 0 percent risk of ruin. Validating your methodology using the TEST procedure will confirm your methodology's edge. You will no longer be trading in the dark but trading with knowledge. Your subconscious mind will see you doing the work enable your trading. You will no longer be hoping your next trade is a winner. You'll start hoping your methodology starts finding additional setups to give you more opportunities to earn xepectancy. You will start focusing on the process.
Validating your expectancy with TEST will give you the confidence that you actually know what you're doing and what you should expect to earn over the long term for every dollar you risk with your methodology. you'll stop hoping and start expecting.
2. Managing Greed
Greed manifests itself when you start wanting more. It will push your insecurity button. Greed occurs when you're not satisfied with what you have. Greed becomes an issue when you're emotionally disoriented. Emotional disorientation results from flawed objectives and expectations. Remember, the higher your expections, the higher risk you'll face and the higher your probability of being ruined!
Be clear about your preferred risk capital return. You should be happy to stick with your modest return expectations.
3. Managing Fear
After achieving emotional orientation to manage your greed, you'll need to learn how to manage your fear of losing. your fear of failure. Fear comes from the unknown, fear of not being in control due to the uncertainty of the future.
It's important to manage your fear because if you don't, you may not execute your trade plan correctly-- failing to execute trades, moving stops, and exiting too early. you need to develop a proper mindset to keep trading your methodology regardless of your fear.
The only way you can overcome your fear of losing is to confront it. Confront your fear and take control. Remove the uncertainty of the future by creating certainty through negative expectations. Expect the worst. If you can do this, you'll never have to consider whether or not to follow one of your methodology's signals. You'll trade all the setups, inevitably lose, but benefit over the longer term from your methodology's positive expectancy. It's importnat to remember that although trading is relatively simple to do, it's not easy.
4. Managing Pain
Trading is a world of pain. I conqueror my pain by being a systematic or mechanical trader. I conquer my pain by trading small, I trade simple, objective and independent strategies that iI know have a very good chance of continuing to remain robust into the future.
Before I place my orders each day, I debit my profit and loss spreadsheet. I expect to lose and I welcom my losses.
I attempt to keep myself busy during the day so my mind does not drift to the market. I don't watch the market during the day. I do not leave charts up on my screens. I do not market tick by tick. Ignoring the market helps me to ignore the trades I expect to lose on. Keeping myself busy distracts my mind from trading. I lessen the pain of trading.
