Individual Psychology

WHY TRADE?

Trading appears deceptively easy. When a beginner wins, he feels brilliant and invincible. Then he takes wild risks and loses everything. -some rational and many irrational. People trade for many reasonsTrading offers an opportunity to make a lot of money in a hurry. Money symbolizes freedom to many people, even though they often do not know what to do with their freedom. If you know how to trade, you can make your own hours, live and work wherever you please, and never answer to a boss. Trading is a fascinating intellectual pursuit: chess, poker, and a crossword rolled in one. Trading attracts people who love puzzles and brainteasers. -takers and repels those who avoid risk. An average Trading attracts riskperson gets up in the morning, goes to work, has a lunch break, returns TV, and goes to sleep. If he makes a home, has a beer and dinner, watches A trader keeps odd few extra dollars, he puts them into a savings account. hours and puts his capital at risk. Many traders are loners who abandon the certainty of the present and take a leap into the unknown.


Trade with Your Eyes Open

Every winner needs to master three essential components of trading: a sound individual psychology, a logical trading system, and a good money manage- ment plan. These essentials are like three legs of a stool-remove one and the stool will fall, .together with the person who sits on it. Losers try to build a stool with only one leg, or two at the most. They usually focus exclusively on trading systems. Your trades must be based on clearly defined rules. You have to analyze your feelings as you trade, to make sure that your decisions are intellectually sound. You have to structure your money management so that no string of losses can kick you out of the game.


The Undercapitalization Myth

Many losers think that they would be successful if they could trade a bigger - account. All losers get knocked out of the game by a string of losses or a single abysmally bad trade. Often, after the amateur is sold out, the market reverses and moves in the direction he expected. The loser is ready to kick either himself or his broker: Had he survived another week, he might have made a small fortune! Losers take this reversal as a confirmation of their methods. They earn, save, or borrow enough money to open another small account. The story "proves" the loser repeats: The loser gets wiped out, the market reverses and - he has been sold out again. That's when the fantasy right, but only too late "If only I had a bigger account, I could have stayed in the market a is born: " little longer and won.Some losers raise money from relatives and friends by showing them a paper track record. It seems to prove that they would have won big, if only they had had more money to work with. But if they raise more money, they - it is as if the market were laughing at them! lose that, too A loser is not undercapitalized - his mind is underdeveloped. A loser can destroy a big account almost as quickly as a small one. He overtrades, and his money management is sloppy. He takes risks that are too big, whatever the size of his account. No matter how good his system is, a streak of bad trades is sure to put him out of business. Traders often ask me how much money they need to begin trading. They want to be able to withstand a drawdown, a temporary drop in the account equity. They expect to lose a large amount of money before making any! They sound like an engineer who plans to build several bridges that collapse before erecting his masterpiece. Would a surgeon plan on killing several taking out an appendix? patients while becoming an expert at A trader who wants to survive and prosper must control his losses. You do that by risking only a tiny fraction of your equity on any single trade. Amateurs neither expect to lose nor are in any way prepared for it. The -out that helps them avoid two notion of being undercapitalized is a coppainful truths: their lack of trading discipline, and their lack of a realistic money management plan.