|
The importance of Trading Psychology is becoming more and more pertinent these days as bad news shows up all around us. Let us walk through a scenario and relate it to your trading. You will see how your thoughts, emotions and feelings determine what you do and what you don’t.
Imagine a plank of wood. It is half a meter wide and thirty meters long. It is strong and rigid. It is sitting on the floor of a large room. If there is an offer of $50, would you walk across it without stepping off? Yes? I agree, just about everyone could, would do it. You know you can do it. You have the ability to do it. The risk is minimal.
Let’s change the scene. We raise the plank of wood one meter high. It is the same plank of wood. You know you have the skill. You have done it before. Would you still walk from one end to the other for $50? Will everyone say yes? Some will and some won’t. What is the difference? It certainly is not the difference in their walking skills. It is the difference in their risk assessment, the associated reward and their psychology. If I increased the reward to $500, would more people be inclined to do it? What if the reward was $5,000, even $50,000. Would a few change their minds?
There is no right or wrong. There is a skill involved which almost everyone has (walking across a half meter wide thirty meter long). There is a risk. There is a reward and some would take the risk and some wouldn’t.
Now we have the plank of wood between two high rise buildings, about one hundred meters high. Is your heart starting to beat faster? What reward would make you walk across this plank? $50,000? $500,000? $5,000,000? Do you see the importance of your mind? It is the same plank of wood. You know you can walk across it. But now the risk is much higher. Some would say: “there is no way you would get me to walk across that board”. Are you one of them? Would any amount of money get you to practice a skill that you know you have?
Here is the last scenario. We have the same board, same two buildings, and same height. You are standing on one rooftop. The other building is on fire. Your children are in the other building. The only way you can save them is to walk across that board. How many of would walk across that board? More than before!
Let’s now bring it back to trading. Having the knowledge is not sufficient. Getting the education is not enough. You need to get your mindset right to be able to trade. The only way to do that is to actually do it. Does that sound like catch 22? It isn’t. You can start practicing with small amounts; that is like having the board on the floor. Then go a little bigger and practice with that, get comfortable with that. Eventually you will have the mental mindset to raise the board higher and higher, as high as you would like.
Super traders have the skill and have their emotional challenges under control. They have enough practice behind them to pull the trigger when the time is right. Their priorities are in the right place.
Believe, achieve
Sinan Koray
|