Stock Market 101: Pride & Regret: The Deadly Duo

Stock Market 101: Pride & Regret dangers Duo for Investors

Stock Market 101

No profession requires more hard work, intelligence, patience and mental discipline than successful speculation…Robert Rhea (The Dow Theory)

Accepting the reality of losses is an essential aspect of successful trading. New traders often fall for the trap of believing that they can win every trade, but experienced traders know that this is not possible. Trading always involves risks and rewards, and losses are an inevitable part of the game. Ignoring or denying losses can lead to financial ruin, as traders who refuse to accept losses are more likely to make poor decisions and take excessive risks.

Traders must be willing to accept losses and learn from them. Losses can provide valuable insights into what went wrong and how to improve strategies for future trades. Successful traders understand that losses are a natural part of the trading process and do not allow them to affect their emotions or cloud their judgment.

It is essential for traders to have a realistic mindset when it comes to trading. There are no shortcuts to success in the markets, and there is no magic formula that guarantees profits. Instead, traders must be prepared to put in the hard work and make smart decisions based on careful analysis and research.

Overall, traders must accept the reality of losses and be willing to learn from them. By doing so, they can develop a successful trading strategy that takes into account both risks and rewards. It may not always be easy, but accepting losses is a critical component of becoming a successful trader.

These e articles provide more information and validation of the importance of accepting losses in trading:

 

Stock Market 101: Psychological Aspects of Trading

There are two significant psychological aspects of the risk/reward concept. Although they may appear to be similar, they are not. The first aspect involves doing things correctly. This means making a trading plan and following it with extreme discipline. As easy as this seems, traders struggle the most because it involves keeping a trading journal, writing down every trade, and an honest inventory of all actions taken during the trading day. Sadly, some do not do this and have no record of what they did or why. This is similar to a businessman who does not keep up the books for his business. How long do you think such a business will survive?

The second aspect of the risk/reward concept is avoiding mistakes. We are all human and make mistakes, but there is a benefit to this. That benefit is obtained by studying the mistakes thoroughly (via the trading plan and journal) and then doing everything possible not to repeat them again. This is how we grow and develop — both as traders and in life.

We learn through our mistakes–more so than by doing things correctly. We accumulate regret through making mistakes and accepting them with rigorous honesty. This regret is a form of personal responsibility that then drives us to make a firm commitment to never repeat that mistake.

Stock Market 101 Point 3: Discipline and Self Responsibility

Self-discipline and personal responsibility are two practical principles that help us anticipate and even avoid making mistakes. Personal responsibility plays a significant role in trading success. This is because the trader is entirely responsible for his or her own market choices. It is the trader who decides to enter or leave a trade, and the trader must accept this decision. If he doesn’t, it is like jumping out of an aeroplane with a busted parachute, hoping it will start working before he hits the ground.

It is like a poor swimmer heading into treacherous waters because she assumes the lifeguard on the beach will save her if things get out of control. In the markets, you are your parachute and your lifeguard. No one is going to save you but you! The power of personal responsibility in trading cannot be taken lightly and should be a bedrock belief for everyone who enters the markets.

Self-reflection

As yourself, these simple questions:

  • Has anything changed from my original plan?
  • Has the technical pattern or company profile changed from the time I entered the trade?
  • Has my initial price objective changed?
  • Has my stop been hit?

These four questions should be written at the top of every page in your trading journal because they remind you that you are responsible for every aspect of your trade. If the answer to any of these questions is “yes,” then you must exit the trade. If the answer to any of these questions is no, you must manage the trade.

As you can see, personal responsibility is the foundation for self-discipline. Thinking about losing or winning requires discipline. By focusing daily on your trading journal and the four questions above, you become disciplined. Examining your daily trading journal is the best way to spot mistakes and analyze where you have acted impulsively, impatiently or allowed your rat brain to take over. Taking personal responsibility for any errors and then being disciplined to avoid making them again is among the quickest ways to achieve lasting trading success.

Good luck happens when preparation meets opportunity; bad luck happens when lack of preparation meets a challenge…Paul Krugman (Economist, NYT Op-Ed March 3, 2006).

Biography

Janice Dorn, M.D., PhD, received a PhD in Anatomy (Neuroanatomy) from the Albert Einstein College of Medicine in New York. She is certified by the American Board of Psychiatry and Neurology and the American Board of Addiction Medicine. Dr Janice Dorn has written over 1,000 articles on trading psychology and behavioural finance. Dr Dorn is dedicated to providing education and training about how the brain, psychology and emotions impact financial decision-making. Janice advocates for the elderly, a lifelong dancer and a pianist. Her website is mindmoneymarkets.com.

Research

Other articles of interest:

Psychology of Investing: Escape the Herd, Avoid Financial Destruction

Psychology of Investing: Escape the Herd, Avoid Financial Destruction

Psychology Of Investing: Follow The Trend Updated Jan 31, 2024 Repetition is the father of all sins, stupidity is the ...
Palladium Metal Price ready to blast off

Palladium Metal Price Unveiled: Impact on the Hydrogen Economy

 Palladium Metal Price and its Impact on the Hydrogen Economy Updated Jan 31, 2024 Introduction: Unearthing the Palladium Enigma Palladium, ...
Navigating the Stock Market Forecast Next 6 Months: Strategies for Success

Analyzing Trends: Stock Market Forecast for the Next 6 Months

Stock Market Forecast Next 6 Months: Analyzing Trends and Predictions Updated Jan 30, 2024 As we consider the stock market ...
Understanding Psychology for Dummies

Simplifying the Complex: Understanding Psychology for Dummies

Psychology for Dummies: Understanding the Mind of the Masses Updated Jan 30 2024 Ahoy there, fellow investor! It's indeed true ...
What is Hot Money: Unraveling the Significance and Endurance

What is Hot Money: Unraveling the Significance and Endurance

What is Hot Money: Unveiling the Intricacies Updated Jan 30, 2024 Introduction:  Deciphering the Nuances of Global Capital Flow In ...
Investment Pyramid: risk to reward analysis

Investment Pyramid: A Paradigm of Value or Risky Hail Mary?

What is an investment pyramid? Updated Jan 30, 2024 An investment or risk pyramid is a strategic framework for portfolio ...
Zero to Hero: How to Build Wealth from Nothing

Zero to Hero: How to Build Wealth from Nothing

Introduction to How to Build Wealth from Nothing Jan 30, 2024 Building wealth from nothing may seem like an impossible ...
S&P 500 Forecast Mastery: Navigating Markets with Psychology and Precision.

S&P 500 Forecast 2024: Charting Projected Targets

Navigating the Market: A Closer Look at S&P 500 Forecast Jan 29, 2024 The S&P 500, often referred to as ...
Crowd Behavior

Unraveling Crowd Behavior: Deciphering Mass Psychology

The Road to Success: Defying the Masses in Crowd Behavior Updated Jan 29, 2024 Introduction Understanding how large groups' emotions, ...
Stock Market Predictions 2018: Will this outlook come to pass

Stock Market Predictions for 2018: Reflecting on Past Insights

Unveiling the Crystal Ball: Expert Stock Market Predictions for 2018 Updated Jan 28, 2024 As we stand on the precipice ...
Investing for dummies 2022: Embrace Disasters

Investing for Dummies: Navigating Disasters with Confidence

Updated Jan 27,  2024 Investing for Dummies: Stand Out, Don't Follow the Crowd We employ a historical backdrop to underscore ...
The Enigma of the Lemming Effect: Navigating the Intricacies of Hive Mind Mentality

The Lemming Effect Enigma: Unraveling the Hive Mind

The Lemming Effect Enigma: Unveiling  the Hive Mind Updated Jan 27,  2024 Success in the market demands diverging from instinctual ...
Stock Market Psychology Chart: Trend vs emotion

Stock Market psychology chart: Unlock Your Trading Potential

The Stock Market Psychology Chart: Understanding the Emotions Behind Market Movements Updated Jan 24, 2024 Stock market investing can be ...
sheep behavior - the Bandwagon Effect

What is the Bandwagon Effect? Exploring Its Impact

What is the Bandwagon Effect? Unravelling Social Influence & Cognitive Bias" Updated Jan 23, 2024 Have you ever found yourself ...
What happens when the stock market crashes: if you are smart you back the truck up and buy

What happens when the stock market crashes? Opportunity!

What happens when the stock market crashes? Time To Buy Updated Jan 20, 2024 The Smart money backs the truck ...