Emotional state of the trader directly affects his deposit. Even the best strategy verified for years can cause losses if a trader is upset or full of fear and hazard. A result of using any trading instrument even the best one mostly depends on a person but not external factors. A self-confident trader has more chances to make a profit even he uses the worst or silliest strategy because he controls his emotions. When trading in the financial markets you should always be mentally ready for your success.
When any new trader has studied and started using a new strategy after some successful deals he imagines he is a great trader and guru of the market. On a wave of euphoria he carelessly ignores his own trading rules. It happens because of undue confidence which gives an illusion of impeccability. And this is the way of self-undoing. The result of it is the capital loss. No matter how the trader is successful at the beginning of his career it is very silly and dangerous to violate the rules. Only the systematic following the rules will lead the trader to success despite the losses on his way.
The rules are very important in trading. A good support in making the rules of the option trading will be a trader’s diary. The trader’s diary is a history of successful and unsuccessful deals described and analyzed in details that helps to escape the same mistakes and gives an opportunity to test and improve your trading strategy. Fixing the progress you understand what you do better and analyzing your mistakes shows what you should study or cut off to gain success. Looking back you will see your progress and it will be a good motivator and help you not lose confidence in yourself. Do not be surprised if you spend more time for self-searching than for analysis of the market. Only self-improvement is a key of the successful trading.
A control of your emotions is an important part of success in trading. There is an important trading lesson taken from Alcoholics Anonymous Society. It is worth noting there is an opulent similarity between the trader losing his money and an alcoholic: he always changes his trading technique as the alcoholic who thinks his problem can be solved if he replaces strong drinks with weaker drinks. Such trader becomes a loser who is not able to accept the losing control in his trading. Only when a person accepts he is an alcoholic he has a chance to cope with this problem. The alcoholic understands who is he after having hit rock life bottom and lost everything. And so the trader does having fallen into euphoria and felt he is almighty after a series of successful deals he loses a profit and then a whole deposit going to the bottom of financial markets. After crashing out of the market only few traders understand the reason of their losses was not wrong trading but wrong mind. These people can be changed and become successful traders. That’s why the first step will be to accept that you are the “market alcoholic”, “loser”.
Unprofitable deals for losers are like alcohol for alcoholics. A small loss is like a glass of vodka, a big loss is like a continuous binge. Some small losses lead to a binge. Loosing trader jumps from one instrument to another changing strategies and applying to different guru and “teachers”. His money quickly leaks away following his attempts to hit a jackpot and taste a victory again. To stay abstainer you need to accept once for all: “I am an alcoholic”. Imagining you have killed the alcohol you will quickly open the way back to alcoholism. So every trading day you should begin at the monitor with rates and say: “Hi, I am Vasya. I am a loser”.
The lesson taken from AA Society helps us to understand if we follow our fear it will lead us to dead end and crash. The successful trader reacts on losses as nondrinking person among his friends after two glasses of alcohol – tried and stopped. A series of losses signals the trader to stop and think. A loser will try to get his money back hoping to make a profit and opening deals again and again. Such hankering to trade always crosses a line between a risk and gamble. They buy options emotionally and become trading alcoholic. Having lost everything these guys become analytics as the alcoholic who has lost everything and work in the bar drinking up the leftover alcohol. Cheating themselves and the other people most losers represent success and manage their deposits more careless. Ignoring the notes, plans and trading records they quickly go to the bottom and don’t think how much money they have lost.
At the bottom it is dark and terrible. All his life a man has been building his self-concept pyramid and some people have high pyramids. But it is the most difficult for them to go to the bottom and lose their capital. In such situation we have a wish to leave everything and hide. But never follow this feeling and remember: you are not the only. Many traders were there. You will recover feet and build a new successful trading career if you are able to accept that you were the reason of your losses. Only this way will help you to develop self-control like the successful traders did.
The trader should understand that he cannot control losses. The unprofitable deals accompany all traders and you cannot change it. When the trader opens a deal he always risks and it is normal. But if you risk too much it is abnormal. A professional trader always knows a risk he can accept if a forecast is incorrect. When the trader determine maximum allowed amount he should never exceed it. If you see a potential deal and its risk is some cents more than allowed risk you should miss it. It is impossible to earn all the money but it is easy to lose them. If the risk is exceeded even one dollar you are a loser. In option trading you have a fixed loss rate but never buy more than you planned even if the profit is evident.
The financial markets are like the biggest attraction in the world. It is like a sport competition where you can be a participant and a viewer at the same time. Just imagine that on the football field you can join to any team and earn a hundred dollars. But if you make a goal you will be paid as a professional! At the first time you will watch the game until you see a good chance you will take a part in the game. You will do it at the second time too. Such caution made a famous illusion about the “beginner's luck”. After some goals and having received big money an amateur thinks that he is better than a professional. Greedy amateurs jump to the field even when the game does not promise a success. Having lost the money after a short series of unlucky deals they are not able to understand what happened.
Knocking against the stub and going mad from pain a monkey begins to hit it. You often do the same. When the market falls down you try to earn buying, open new deals again and again in hope that the price chart will reverse. At these moments your actions are controlled by emotions and not your mind. Anger, fear and admiration are the worst enemies of success.
Controlling your emotions and understanding a source of your mistakes you will be able to form a sense of confidence. Understanding psychological aspects will help you to see the mistakes and escape them in future. Gaining in experience and self-working are the basis of trader’s success with regular profit.