Thursday, March 11, 2010

Preserving Trading Confidence

Just quickly wanted to cover this topic cause i got some emails asking about this topic.

Trading with size that is too big for your account WILL MAKE US ALL EMOTIONAL. That's the bottom line. Emotions is what wipes out most traders out of the market. Stubbornly repeating and repeating mistakes over and over again and the ironic part is that most traders know fully well what they are doing wrong. But while you are in the thrill of the 'moment' and the rush gets to the trader's head and visions of massive profits cause the trader to become over confident and ramp up that 500 shares to 2000 shares.
I used to do that ALL THE TIME! Can't tell you how many decent up days i ruined by getting "greedy". Essentially, it's greed. You are not happy with your current gain and at that moment you are willing to sacrifice that gain in hopes of tripling the current gain.

The problem with this type of trading is you are sabotaging yourself and you are setting up for failure! Sure, you might win here and there but over the long haul, ramping up position size will hurt not only your performance, but importantly your confidence and psychology as a trader! As traders, there is nothing more important than TRADING CONFIDENCE.

Ever notice how when you have a bad trade: there are usually numerous other bad trades that follow shortly after? that usually cause your trading confidence was shaken and now you question yourself. The trades you think about taking work and the ones you actually take, do not work!! This is lack of trading confidence.
How do you know when you are lack trading confidence? WHEN YOU QUESTION YOURSELF and doubt you will make money. If you doubt you will make money, then you are probably right!

Protect your trading confidence!!

3 comments:

Anonymous said...

Thanks for this. I am currently in this exact rut! I keep hearing how easy it has been to make money and I think, "I am losing my ass" and of course, it is because I am 'overlooking' the rules of the game. This little reminder is much appreciated and perfectly timed!

RRott

Stewie said...

My pleasure RRot. You always need to worry when you hear too many traders talking about how 'easy' it is to make $$$.

PIK said...

Stewie... you are dead on with this. I cannot tell you how many losses are due to my position size being wrong. When I have a small position size it serves as my pillow for the night. It allows for worst case scenarios to be manageable. Unfortunately I still slip and get greedy sometimes... and 9/10 times it bites me because the large position shifts my ability to hold the stock to its proper exit point.

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