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Don't take that trade!

All too often I see people taking trades they shouldn't. There's sometimes an impulsive desire to "be in the market" even if there is no reason to be.

The adrenaline rush of participation can overwhelm common sense and cause bad decisions, especially if there is any strong emotion involved.

Why are you taking that trade?

Before you take a trade in anything, ask yourself the following:

  • Does this trade fit in to my trading system?

  • Do I have favorable reward vs risk?

  • Am I taking this trade just to trade or am I very confident about the setup?

Be sure you understand what you are getting into before you get into it. I think a lot of traders lose money and ultimately stop trading altogether because of poor impulse control.

And I get it, I really do. Trading brings about a lot of positive neurochemical reactions when we win. The rush of dopamine can feel very good because it gratifies us for our efforts. So we want to keep doing it again and again to re-experience that feeling.

But that isn't what trading is about. This isn't meant to feel like an addiction, it's meant to be a way to consistently generate returns.

Focus on finding discipline

Consistency comes from discipline, and discipline is the antithesis of addiction and impulsivity.

So what does that mean for us as traders?

It means we should be cognizant of our reasoning for entering and exiting positions. A trading journal and a system for which we qualify what is a trade we will take, how we will manage it, and why we are getting in or out is important.

It also means that we need to work on adapting and evolving to changing market conditions. What used to work isn't necessarily going to keep working. So be prepared to test new strategies as appropriate.

But most of all, be aware of how important discipline is to longer term success. Discipline means making sure that we are adherent to our trading system and style, it also means being cognizant of good risk management, and attempting to become consistent.

That consistency has a lot to do with two key themes. Cutting losers quickly to minimize risk and capital being tied up in bad trades, and riding winners as long as the trade thesis and momentum remain intact.

In conclusion

Just about anyone can be a successful trader, but the big difference between those that take that path and those that give up is that successful traders want to be able to survive to take the next trade.

They focus on taking trades where the dynamics appear favorable, and step away from them when that changes without a second thought.

To win over the long term we must be willing to optimize our behavior, our approach, and most of all focus on our discipline.

3 kommentarer

Andy Featherston
Andy Featherston
08. okt. 2022

This is so timely - thanks Horse 🙏


Tattoo this article on my back please.


This year I've learned the hard way to take your advice above to heart!

I started investing actively only in 2020. I learned to be a trend follower. The trends that worked best for me usually started out with big moves and then continued.

Maybe it's just me, but this year it seems like I see a lot more false starts. For instance, the explosive little rally this last week. Whereas before I would have hopped on to such a rally, this year it seems the rallies end in a big hurry.

Now I just don't trust rallies! It means that unfortunately I missed the summer rally. The only good thing is it also means I've missed most of t…

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