We have all had trades where we did everything right, we entered based on good
signals, our stops were placed, we new how we were going to exit the trade at a profit,
the trade started out positive then turned and headed against us. In order
to follow our trading rules we watch the trade go against us we are afraid of being
wrong so we move our stop because we know the trade is going to go back in our favor.
We become afraid of losing money, afraid of being wrong, and our confidence starts to
weaken. We eventually get stopped out and go into a mode of feeling sorry for
ourselves and wonder what happened.
Some time passes, you are reviewing the trade and for a moment you feel a little better
because the trade did turn and go in the direction of your initial research. But that
doesn’t last long before you go back to the fact that you lost on the trade. You start
to wonder why you violated your trading rules and moved the stop. You think I could
have made a management decision and closed the trade early, for a small loss because
there were signals pointing to a larger loss than you had original planned for.
Now you start looking at yourself and wonder was it the fear of losing money because you
place too much importance on money or was it your ego you were trying to protect? All
you do is give your money to the market.
There is something wrong with the trader or his execution or his trading system
because he is not able to pull the trigger to get out of the trade. Most of us
were raised to think that losing is bad and it reflects on us personally. If you
lose it is a shame, which causes pain. This is one of the main reasons that new
traders stop trading. Because they want to get rid of what is causing the pain
so they quite trading and look for someone else to trade for them or for other
forms of investing that are less painful. We as humans would rather have physical
pain rather than mental or psychological pain. Now this doesn’t happen on one
trade alone, it takes many trades to get a trader to leave trading because they
love trading so much. After a break from trading many traders will come back and
give it another try, but this time they use more caution in their trading and
are much better than they were before, even though they were not thinking about
trading.