The hardest single thing for a trader is the psychologically of handling losing trades. First, we need to recognize a very important principle in the market. This principal is known as the ‘80/20 rule’. It is not a hard and fast rule, but a guideline. For traders, this means that 80% of your profits are produced by 20% of your total trades. For most traders you would see very few really big winning trades, a moderate number of good winners, and the majority of trades would be just mediocre.
The mediocre sometime for many of us is that if we look at our losing trades, the same principal would apply. There would be many small to moderate losers, but a few major losers that could be account breaking. That is why the most important discipline that you can develop is the ability to stop out of everything that goes against you with absolutely no emotions or second thoughts. This, I truly believe is the single biggest key to successful trading.
The other concept that goes along with this thought is that you must learn to be happy when a majority of your trades are just average. Many of us start to think that we must be doing something wrong if we are not having huge gains on most of our trades. Since we are conditioned to think that if we are not winning all the time, we are losing, it is very easy to fall into that trap. It might be a little too obvious an example, but remember that the very best professional baseball players, who are considered to be successful and are compensated richly for their efforts, only hit the ball 3 out of every 10 times they are up to bat. While you should always look to improve your game (trading), remember that a majority of your trades will not knock the ball out of the park.
Trading in the market often requires a mindset that is very difficult for us to master. Along with learning everything you possibly can about the fundamental and technical side of trading, spend a good portion of your training time on the psychological side of the game is important as well.
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