The weakest link to any trading strategy is the trader that is executing it. It is usually the mental and emotional errors of the trader that cause 90% of traders to lose money. Trading success is determined more by the mindset of the trader, than their skills with math, economics, or macro knowledge.
- The ego takes over the trader and being right becomes the #1 priority. This causes the trader not to take losses because they don’t want to be proven wrong.
- Greed causes traders to trade too big because they want to make a huge amount of money in one trade.
- Fear causes a trader to exit to early with a very small profit because they are afraid it will disappear.
- Discouragement causes a trader to quit before they have given themselves or their systems enough time to win.
- Coat tailing is when a trader follows a guru’s trades instead of learning to trade correctly themselves.
- Style drift is when a trader changes their method instead of sticking to it and letting it play out when the right market environment emerges.
- Arrogance leads a trader to trade too big and take on too much risk, this usually happens after a big winning streak or outsized win.
- Hope is when stop losses are replaced with prayer.
- Boredom is a dangerous time where a trader cares more about active trading than making money.
- Desperation is a dangerous mental state that leads a trader to make a “Hail Mary Trade”, this usually happens when the trader is in a deep draw down and tries to get back to even in one big ill advise low probability trade.
Trading more than anything is a mind game. If you want to master trading then first master your own mind.