3 Dangerous States of a Trader

2023年10月9日

“To err is human”

It comes from Alexander Pope’s poem, “An Essay on Criticism.”

This popular saying reminds us that making mistakes and feeling emotions are a common part of the human experience.

In the high-stakes arena of financial trading, most people run their trading through three main emotional states.

You might not be able to eradicate them completely but we can learn to keep them in check for superior trading performance.

Let’s go through these three powerful states.

State #1: Fear in Trading

Fear is the emotional state that:

Stops traders from actioning trades.

Letting losses run (as they refuse to take a loss)

Cutting winners too short (as they don’t want to lose their profits)

When fear dominates, traders may freeze, act too soon, act too late or not act at all.
How to Overcome Fear in Trading

A well-structured trading plan is a trader’s best defense against fear.

You need to think like the market.
You need to trade like the market.
You need to remove fear from your actions.

That’s why you need to limit your risks per trade, where the loss does not affect you emotionally.

You need to be strict with your trading plan, to avoid any discretionary and impulse trading decisions.

And it’s important to start thinking with a more mechanical and rational approach rather than fear-driven ones.

Practice mindfulness and stress management techniques can also keep your fear under control.

State #2: Greed in Trading

Greed drives traders to chase profits.

This often compels them to take on excessive risk for the chance at bigger returns.

They either increase their risk per trade, knowing that the reward will be bigger.

Or because they want more, they will hold onto positions for too long.

Having greed overtake the mind, will also result in overtrading and using up too much of their portfolios per position.

How to Keep Greed at Bay in Trading

Understand that trading is a long-term game.

Consistency with small gains will build up a portfolio.

Be content with 3% – 4% winners. Keep to this and greed will fall away and you’ll have a better chance of longevity when trading.

State #3: Ego in Trading

Ego is one state I never see anyone talk about.


All you hear is fear and greed and greed and fear.

But EGO.

Ego is probably the most stubborn enemy.

“Ego gets you inches but it doesn’t get you impact.” – Cameron Sinclair

It convinces traders that they’re right, even when the market says otherwise.

An inflated ego can lead to overconfidence, over trading, revenge trading and it can cause traders to disregard their strategy, risk and they’ll end up making irrational and dangerous trading decisions.

How to Check Ego in Trading

Even the most successful traders suffer losses.

So you need to humble yourself and adopt amore mindful approach to realistic trading.

Each small loss is a contribution and a trading cost to one step to success.

You’ll also learn more from your losses than your gains. Which will give you an opportunity to learn and improve.

So go back to your trading journal and review, monitor and analyse the true essence of what it takes to build your portfolio.

This will help keep your ego in check.

Conclusion

Fear, greed, and ego are integral parts of the human experience.

But there is NO need and use for it to succeed as a trader.

When you learn to recognise these states and, you’ll be able to manage them better.

And this will drastically improve your trading performance.

Remember, successful trading is less about conquering the market and more about mastering your emotions.