Trading Educators Blog
Accepting Smaller Losses
Traders are willing to gamble a lot of money to avoid a potential loss, rather than immediately accepting a smaller but certain loss. Likewise, traders will hold on to a losing trade, and continue to watch it loses money, rather than face the loss. Why is it that we see money as being so important? The answer stems from our culture. What we esteem as good things are associated with money. Money is associated with security, safety and happiness. The media constantly bombards us with the idea that money is security. If we have money, we can buy a nice car and fancy clothes that will draw admiration from our friends and neighbors. The more money we have, the more security we think we will have. It's difficult to get away from these ideas. Many traders are attracted to trading because they think that trading is an easy way to fulfill their dreams. The more money they make, the more status and freedom they believe they will have. Because it's natural to associate money and profits with security, you can create preconceived notions that adversely impact trading decisions. Profitable trading requires a logical, neutral mind set. You must trade objectively as much as is possible.
You have to work at separating your emotions from your trading, but with preparation and planning, you can learn to trade objectively and effortlessly.
It sort of like learning to play the piano: You separate what one hand is doing from the other, yet the two are working to create a blended outcome.
One thing that might help is to think of trades in terms of points or ticks, rather than in terms of money. As long as you are making more points or ticks than you are losing, you know you would come out ahead with the money.
Limit your risk. Trade with money you can afford to lose. View profits and losses in terms of ticks, pips, or points. Doing these things will help you to stay objective in your trading: assist you in keeping your emotions out.