Losing money is a bad habit. Let’s look at some of the behaviors that lead to losing money in trading:
1. Frequent Trading
All K-line entities with kinetic energy and rapid fluctuations will make people want to enter the market. And the smaller the time period, the faster the K-line fluctuations.
2. Heavy trading
I was mysteriously confident in my trading choice, and I believed that I would be able to guess it right this time, so I entered the market with a heavy position.
3. No stop loss
I don’t think the market will always go in the opposite direction of the entry direction. As long as there is no stop loss, it will rise back sooner or later. At worst, you can add positions to lower the average price.
There are also traders who have the above three trading performances, and they are likely to lose money. Of course, this refers to the majority of ordinary people. There are some trading geniuses who have achieved their goals through frequent trading, heavy positions, and no stop loss, but this approach is not suitable for most people. The reason why it is easy to develop the above three bad habits is that people think that these three practices can make money. Subconsciously, it is better to be fast than slow, and big than small. Especially when it comes to money, isn't it better to make quick profits and make more profits? So there is always a voice that makes people can't help but frequently attack with heavy positions without setting stop losses.
However, the subconscious mind lacks a very critical link, which is to use reason to prove that these three behaviors can make profits. If you can use rigorous logic to prove that frequent trading, heavy trading, and no stop loss are completely able to make stable profits, then this consciousness will be strengthened, making people more willing to do so. On the contrary, if theory proves that this approach will only lose money with a high probability, and reducing the frequency of trading, light trading, and strict stop loss can bring long-term profits, this subconscious mind will gradually offset. This is the process of correcting bad habits.
Understanding how to overcome these three problems can actually help people achieve stable profits more than studying technology. However, traders often ignore these psychological reasons and always look for reasons at the technical level. Here are three aspects that are not related to technology but are strongly related to trading psychology and trading execution to help traders think in the right direction.
1. Build theoretical confidence
This step helps traders to establish a clearer understanding of the market. Traders without a theoretical system are clueless when seeing price fluctuations. They can only watch the price rise and fall without any analysis method. Traders with a theoretical system have a set of analysis processes and description methods for market price movements. This set of theories can be wave theory, entanglement theory, Dow theory, or even a set of theories summarized by traders themselves. Theoretical systems are neither right nor wrong, and the purpose of establishing a system is not to predict, but to describe. For example, within the system, there are clear definitions of whether the price movement is adjusting or running, whether it is a five-wave rise or a three-wave pullback, whether it is a major trend or a minor trend, etc. In this way, a trader is not confused when facing any commodity target, but has a focus to dismantle the market. This is the so-called theoretical confidence.
2. Build confidence in your model
Pattern confidence is related to the trading system. That is, how traders make profits from the market based on this theory. For example, in the theoretical system, the market will be divided into rising, falling, rebounding, and callback. And there is a corresponding identification method for each situation (not necessarily 100% correct, but trading is about making the highest probability). Then in the trading system, you can only catch callbacks and rebounds to enter the market, waiting for rising and falling. This makes sense in terms of the pattern. In this way, a profit system is established, and of course, corresponding stop loss and stop profit strategies must be used. All of these are combined into a specific and executable profitable trading system. This is pattern confidence.
3. Build confidence in execution
Execution confidence is to verify the correctness of the model through backtesting and real trading. This step is very critical and is also a difficult point that is easy to ignore or needs to be overcome. Many people have a natural resistance to execution. They can think, but it is difficult to execute. To build confidence in execution, you need to do a lot of backtesting, simulation, and real trading. Different backtesting methods have different results, and some backtesting methods are very deceptive. The most effective is to use a light position in real trading. Improve trading performance through a cycle of a large number of transactions, review, re-trading, and re-review. Assuming that through light position in real trading, it can be guaranteed that there are only small losses, small profits, and large profits after execution. Then you can initially build confidence in execution.
The above three types of confidence building are ways to help a trader get out of the bad habits of frequent trading, heavy trading, and not setting stop losses. If you understand it, you will naturally stop doing it. If you experience it, it will naturally form positive feedback. It is divided into three steps for clarity. In fact, each step contains a lot of knowledge points and difficulties, which require traders to explore and break through. Traders must personally experience the process from 0 to 1 to ensure that every point is experienced and understood. Listening to others can only float on the surface. It's like the apprentice who practices haircutting with winter melon. At the end, the razor always flies to the winter melon. The master can't correct it after thousands of times. In the end, the razor is stuck on the customer's head. Everyone understands the truth, but few people can execute it. Shake your hands 300 times a day, and only Plato can persist after a year. What does this show? 1. Plato has strong execution and persistence. 2. Plato listens to his teacher and is good at standing on the shoulders of his predecessors. This little thing reflects that this person has rare qualities, and scarcity means advantage. In trading, you should also be good at learning from experience and correcting your direction. You should be able to firmly implement simple models. Time will bring light.
