TRADERS AND THEIR IRRATIONAL BELIEFS

Dr Doug Hirschhorn, the author of 8 Ways to Great, shares 5 irrational beliefs that can lead traders astray.

  1. What goes up must come down and vice versa.  That’s Newton’s law, not the law of trading. And even if the market does eventually self-correct, you have no idea when it will happen. In short, there’s no point blowing up your account fighting the tape.
  2. You have to be smart to make money.  No, what you have to be is disciplined. If you want to be smart, write a book or teach at a university. If you want to make money, listen to what the market is telling you and trade to make money — not to be “right.”
  3. Making money is hard.  Nope. Sorry. Making money is actually easy. Statistically, you’re going to do it about half the time. Keeping it, now that’s the hard part.
  4. I have to have a high winning percentage to be profitable.  Not true. How often you are right on a trade is only half of the equation. The other half is how much do you make when you’re right and how much you lose when you’re wrong.  You can remember that with this formula: Probability (odds of it going up or down) x Magnitude (how much it goes up or down) = Profitability.
  5. To be successful, I have to trade without emotions. That is both wrong and impossible. You are human so you have emotions. Emotions can be a powerful motivator to your trading.

 

 

 

 

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