You’ve heard the saying that greed and fear drives the world markets.
However there is one, even more, dangerous trading state that not only helps drive the market, but is also the reason why only around 3% of traders’ succeed.
It’s an emotional state which hits even the most driven trader.
I’m talking about…
Ego
Most novice traders fail to adopt and implement a proven and tested trading strategy, early when they start to trade.
It gets to the stage where trading is down to just trial and error.
The problem with trial and error is that it leaves room for 100% uncertainty for their future portfolio.
Trading becomes nothing more than a competition where they wish to ‘beat the market’, ‘all in’ with nothing more than their false ego flooding in their trading decisions.
At times the trader will win a small gain and other times they will take a small loss.
This will carry on until, ONE DAY they will end up taking a mother loss of a trade.
Once this happens it’s pretty much game over. All rationality, logic and reason are thrown out the window.
Then a primitive psychological trait kicks in to not only survive, but to make the market their master.
There are a number of actions the egotistical trader may then take at this point.
Action 1 – Overtrade
First, they may feel the need to take as many trades as they can to make up for that one big loss.
Without a plan in place and without a carefully thought out stop loss or position size, the trader will most likely take a series of even larger losses.
This is due to trading based on gut rather than what has worked in the past.
Action 2 – Revenge trade
At this point, the trader may feel ‘gatvol’ about what the market has taken from them.
Now it’s all down to revenge trading, chance and luck. The trader will scour the market until they ‘feel’ good about another trade.
They get in with a huge position in the hope that they will make up for their losses before the market closes.
Guess what happens next?
Either the market will go in their favour where they bank a small gain where false confidence will kick in which will cause them to repeat the process.
Or the market turns against them and they take a loss, where the trader then gets back in to make up for their most current loss.
This is simply an ego driven and a gambling mentality way to trade.
No matter the outcome, with trading only on the basis of revenge, the market will continue to wipe out their account.
Lose the ego and become a machine
If you want to beat the market, you’ll need to become a machine just like the way the mechanics of the markets work.
By this I mean:
1. Follow a proven strategy and never deviate from it. 2. Only risk money you can afford to lose, to cut out any unnecessary emotions whether you take a winning or a losing trade. 3. Keep to your strict money management rules to avoid another market blowout. 4. Have a ‘worst- case- scenario’ plan for during the unfavourable market trading environments.
Save those last 4 points. They’re gold!
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