Trading Psychology - Why Traders Knowingly Make Bad Decisions
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Trading Psychology: Why Traders Make Poor Decisions
Summary:
In trading, even experienced traders often make decisions that lead to losses. This isn't about accidental errors or experimenting with strategies. If profit is the goal, why do traders act against their better judgment? This behavior has undesirable consequences, such as damaging confidence and creating self-critical thoughts. Understanding and addressing the root causes is crucial to preventing this self-sabotage.
Article Body:
In the trading world, the adage "To err is human" takes on a unique twist. Traders frequently make conscious decisions that lead to losses. These aren’t the typical losses from testing a new strategy or accidental blunders. If profitability is the objective, why do traders knowingly make detrimental choices? The impact can be severe, often affecting traders' confidence and leading to self-recrimination. This negative cycle can persist until the underlying issues are identified and resolved.
Take the story of Mark, an experienced trader who has faced this challenge for over fifteen years. Despite his extensive experience in the futures industry?"working on soybean farms, at shipping docks, and as a broker?"Mark continues to lose money trading from home. He's used various strategies and systems, yet struggles to close the year in profit.
Mark finds trading exhilarating and starts each day eager to dive into the markets. On a typical day, he might gain $600 or lose $800, but more often ends up on the losing side. His wife, still working at 70, often finds him brooding at home, calling himself "stupid" or an "idiot" for his losses. Despite this, Mark persists in trading the same way.
When asked why he doesn't stick to a profitable system, Mark admits they're just too dull. Indeed, well-planned trades can seem boring. But deviating from a system introduces suspense and excitement, making trading thrilling yet risky.
Humans naturally seek excitement and suspense?"why else sit through a movie or watch a live game when you can discover the outcome instantly? This craving for thrill sneaks into trading, where unknown outcomes can provide a rush. However, this desire for excitement is misplaced in trading, where the focus should be on profit, not thrill.
To counteract this, traders should seek excitement through other life activities, allowing their trading strategy to remain straightforward and potentially even mundane?"but profitable. Embrace the steadiness in trading, and let excitement come from other aspects of life.
You can find the original non-AI version of this article here: Trading Psychology - Why Traders Knowingly Make Bad Decisions.
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