We put 1000's of hours in trading. We know the patterns, the price action, indicators, trade management and psychology.
But why do we still make the beginner mistakes. It's easy in theory to say "book small losses" but why is it infinitely hard while doing it in real time? I have a theory to explain this.
There are two different approaches of thinking...1)process oriented 2) outcome oriented. I'll link below the research article for those who want to understand in depth on how decision making is a result of your approach.
To put it simply, if you are outcome oriented (want to make xx rupees per trade, for example) then it will be hard to make a decision to close the trade when the loss is small because it affects your "lifestyle".
If you're outcome oriented, then during a loss your brain subconsciously views losses as a threat for achieving your goals(profits). This damages your decision making. As long as you don't close a trade, you still aren't in a loss, right?:lol::clapping: If you're process oriented then not following the process is the threat for achieving your goal(sticking to the process).
It's a basic natural instinct.
Research: pdf
Extra reading:
This the only way to solve the "hard losses" problem. Change your thinking to a process oriented one. Not following your system should be the threat and following your system should be goal.
When I was first changing my thinking, I felt uncomfortable while trading. Eventually I made it through. The key lies in sticking to your system no matter how it affects you. It will take some while but after a month or two your trading will change.
I am not saying that you mustn't focus on the profits. I'm saying that making profits shouldn't be your primary goal. When you succeed and make a lot of great trades then it's you should be allowed to smell the roses of your hard work because it gives you a motivational boost. But, it's important to understand that the beauty of the roses lies in their "transience".;)
But why do we still make the beginner mistakes. It's easy in theory to say "book small losses" but why is it infinitely hard while doing it in real time? I have a theory to explain this.
There are two different approaches of thinking...1)process oriented 2) outcome oriented. I'll link below the research article for those who want to understand in depth on how decision making is a result of your approach.
To put it simply, if you are outcome oriented (want to make xx rupees per trade, for example) then it will be hard to make a decision to close the trade when the loss is small because it affects your "lifestyle".
If you're outcome oriented, then during a loss your brain subconsciously views losses as a threat for achieving your goals(profits). This damages your decision making. As long as you don't close a trade, you still aren't in a loss, right?:lol::clapping: If you're process oriented then not following the process is the threat for achieving your goal(sticking to the process).
It's a basic natural instinct.
Research: pdf
Extra reading:
This the only way to solve the "hard losses" problem. Change your thinking to a process oriented one. Not following your system should be the threat and following your system should be goal.
When I was first changing my thinking, I felt uncomfortable while trading. Eventually I made it through. The key lies in sticking to your system no matter how it affects you. It will take some while but after a month or two your trading will change.
I am not saying that you mustn't focus on the profits. I'm saying that making profits shouldn't be your primary goal. When you succeed and make a lot of great trades then it's you should be allowed to smell the roses of your hard work because it gives you a motivational boost. But, it's important to understand that the beauty of the roses lies in their "transience".;)
Decision making while trading- theory.
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