It has been often seen that the Trader books a profit of 1 or 2 p.c. on the Buy side and thereafter the scrip still keep moving up so far in excess of 5 p.c. The Trader feels that he should have waited for another some time so that he could have got more, instead he was stopped out at a small profit. This is an emotion of Greed.
Sometimes, the Trader has actually achieved his targetted profit and the price action has gone more than the target itself. The Trader doesn't want to book his profit as he wants the price action to move up further. He is now readjusting his profit level further high only to see a sudden fall in price. This is an emotion of Jealosy.
On other occasion, the Trader is seeing his price action going southways. The Stop Loss is not triggered though, but the time taken for the price action to move up and above the buy levels is more and the Trader is restless. The price action stops near the buy levels and creating doji and neither going up or down for a considerable time. The Trader impatiently comes out of the Trade at breakeven. After the price has settled near his buy levels, the price action eventually reaches the Traders profit target levels. The Trader feels he has done a mistake and feels for it. This is an emotion of Fear.
On another scenario, the Trader initiates a Trade, and for his joy, the price action started to move almost instantly to his favourable direction and books his profit at his targeted price. He feels very great. This is an emotion of Joy.
A professional and smart Trader does not give room to such emotion of fear, greed or joy. He believes in his Trade Setup and his Trading System and waits till he is stopped out of the trade by the system. He never adjusts his Stop Loss or Profit Targets, he keeps watching his Trading System do all the work for him. He never stares at the Trade Terminal. He is cool as a cucumber, solid as a rock as if his nerves are made up of steel!
A good Trader always believes in his system. His profit and loss targets are pre-determined and his Risk to Reward Ratio is very solid that he is least cared about price action that is moving around his open trades. He successfully executes his action plan constructed by him. He is like a magician and he believes in his trick.
Trade and Discipline
The trade set up is the result of the strategy formed by the Trader himself and he must stick to it. He needs a lot of discipline and not bothered about the price action at all. He never thinks about what went wrong because he need not have to. He is dependent on his trade system and the system is like his Fund Manager. He seldom disturbs his Fund Manager, instead he trust his Fund Manager. Or his Trade System in this case. The Trade System thanks his Trader for the trust reposed in it by way of profit.
The Trade Systems are formed by the Trader as per some strategy that helps the equity to maintain its strength and to reduce losses during tough times. So it is pertinent to obey the trade systems. Those strategies are to minimize the loss and to maximize the profit. If you are disciplined, the trade system takes care of your profits and the process keeps moving profitably in the long run. During this process, there are bound to be some losses and it is an integral part of the game and one must be ready to accept. I emphasise the readers to maintain strong discipline to follow the system formed by them.
The above table shows the result of the disciplined trader. Out of 7 gains and 8 losses, the trader is pretty sitting in profit.
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You are describing exactly how i do the mistakes in my share trading. Coz when I buy a share and if it is not moving up within a day, I become restless and after I sell the share, it moves on and on. My emotion control is to be tuned because, I am not willing to see my open orders show up mark-to-mark loss and I wait very long time when it is in loss and come out with less profit when it is moving in my direction. Either I take less profit or make big loss and I think I have you follow your method which can fine tune my emotion. Thanks for this good article.
ReplyDelete1:3 ration should be continuously followed. During trade, profit and loss are to exist, the pre-determined stop loss or take profit should trigger as per the system, but manual closing of order will not help.
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