Hello Everyone,

The truth about trading is that it's really much more to do with your emotional makeup and how you handle the stresses of trading vs having the perfect strategy. 

I know some of you think that having special system is all that matters, but I can tell you that I've seen many traders lose money with a good system simply because they became unglued psyclologically.

Anyway with all this in mind I want to share an article with you that can help you overcome some of the mental road blocks that all of us face during our trading careers.

Regret: A Powerful Emotion You Must Face

When trading the markets, one often faces actual harm: If you bet a
lot of capital on a single trade, and it goes against you, you lose
it. The harm isn't imagined; the actual loss of money is painful.
It hurts, and you may often regret having made the trade.

There's a very human instinct to avoid pain at all costs. Not only
is the actual loss of money painful, but also the mere feeling of
regret from making a bad trade. Regret is so incredibly painful at
times that many traders avoid even putting on a trade for fear of
having to face the regret of loss later.

It's as if the subsequent regret after making a loss is more
disturbing to the psyche than the actual loss itself.
We feel regret once we realize we have made the wrong decision,
such as making a losing trade. And if we put a lot of ego on the
line with that decision, the hurt intensifies.

For example, if we do an extremely careful analysis, and start to
think that the analysis was so good that it validates our talent as
a skilled trader, we've put a lot of self-identity on the line with
our money.

Whether we are conscious of it or not, we tend to think, "I've put
a lot of effort into this trade, and I think I'm right. But if I'm
wrong, it suggests that I'm not as great of a trader as I had
thought." If we were to make a trade on a whim, in contrast, we may
still feel the regret of the loss, but it won't hurt as much. We
didn't put our ego on the line, so we can easily write off the
losing trade psychologically: "It's not my fault that I lost money
on that trade. I just made the trade on a whim."

Feelings of regret are painful, and some people will do anything to
avoid feeling such unpleasant and disturbing emotions. And, at
first glance, it often seems as if the easiest way to avoid
feelings of regret is to just avoid making decisions. If you don't
make decisions, you can't be wrong or feel regret.

Although this seems like an obvious solution to avoiding the
unpleasant feelings of regret, you may see that if you avoid making
trades (or make poorly planned trades on a whim to protect your
ego), you cannot pile on profits, which is the ultimate goal of
trading. A more practical solution is to learn to face regret
head-on.

There are a few simple ways to cope with regret. The most important
way to cope with regret is to accept the fact that regret is an
emotion that you'll be likely to experience as a trader. You're
going to make losing trades, and if you don't take proper
precautions, you will feel regret.

It's not useful to delude yourself into thinking that you can avoid
regret completely. That said, you can feel relief in knowing that
you can take steps to minimize its powerful influence. For example,
you can remind yourself that regret is not nearly as bad as you are
making it out to be.

Many times, all humans tend to overstate the adverse effects of a
dreaded outcome. We tend to think that a losing trade would be
awful, terrible, or catastrophic. In fact, if we control our risk
on the trade, and plan it out carefully, the risk will be minimized
and not catastrophic at all. Under such conditions, one's potential
demise is greatly exaggerated.

A useful thinking strategy is to remind yourself, "I'm making more
out of the potential loss than it deserves; it is not going to be
as unpleasant as I'm thinking it will be." Another way to minimize
regret is to try to impersonalize the trade. Think in terms of
probabilities, "This is just one of many trades. The outcome of
this single trade means nothing. The big picture is all that counts."

By reminding yourself of the relative insignificance of a single
trade, you'll minimize the potential regret should you lose.
Similarly, it's also important to remember that a single losing
trade (or even a few losing trades) doesn't mean that you have poor
trading skills; it may just be a run of bad luck. There's no point
in making the outcome of a trade symbolic of your skills as a
trader. And, most importantly, never put your self-worth on the
line with your money. You're a professional. The outcome of the
trade should not influence the positive view you have of yourself
as a person.

Don't let the tendency to avoid regret influence your trading
decisions. Regret can be a powerful emotion. It can be so painful
at times that one avoids making decisions, and it may lead to
putting on trades on a whim to protect one's ego. But it's not
necessary to let the fear of regret influence you. Keep in mind
that if you make a losing trade, you may feel a little regret, but
you can handle it. Don't try to avoid regret. Face it head-on.
You'll feel more free and powerful.

Until next week, peace and prosperity,

Jeff

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