Mind over money
Many experienced traders say that the most important part of trading isn’t your system, strategy or even learning how to control risk. Instead, it’s learning how to control your own emotions. As a trader, understanding the psychology of trading and the barriers we put in the way of our success could be the most important step you take on your trading journey. Take your first step with this video by CME Group.
The reality of risk
Before you can control risk, you’ll need to accept that risk – the risk of losing – is a fact of life when you trade. After all, not even Warren Buffet can predict the market. So, why do traders struggle with risk? For the simple reason that no one likes to lose. Whether it’s a chess game or a coin toss, human beings have an innate desire to avoid loss. We want to win. Losing damages our egos – it hurts to lose. And that’s especially true when our hard-earned money is on the line.
Gaining perspective
There’s a lot to learn when you’re a novice trader, and the markets can be a tough classroom. Losses might lead you to start questioning yourself, your strategy, your goals.
What you need is perspective – understand that risk and losses are a normal part of trading and that even successful traders lose. As much as you’d like to win on every trade, taking losses in your stride will be the key to developing your confidence.
Trader, know yourself
If risk is part of trading and yet we hate to lose, how can you conquer self-doubt? Start by understanding who you are – are you the cautious type or a risk-taker? That understanding will let you build a trading plan that suits your personality and prevent you from taking on more risk than you’re comfortable with.