The first Thinking Trading post of my blog has to be dealing with emotions around pulling the trigger. Let’s start from the beginning.
I have been into trading for over a year – give or take. I have opened an account in Feb/March 2017 after continuous papertrading success; that was the moment I thought “well, if I can take a trade with fake money and succeed, I can do it with real money!”.
WRONG. The moment some $500 were on the line (or whatever amount you fund the account with) is the first time your real attitude as a equities trader reveals itself. You can learn literally dozens of chart patterns, use even more indicators etc but in the end everything comes down to the moment you click the mouse button, or press the hotkey if you have that set up. This is what is called Pulling the Trigger.
The real reason why I write this post is because I am tired of seeing hundreds, most probably thousands of dollar profits wasted in front of my eyes simply because I don’t want to pull the trigger. Maybe to be accountable of my actions, it’s written on a blog post now, I can’t joke around no more. I have read several books (and I will read several more) in trading psychology, with many “aha!” moments as well as “yup, I knew that” ones too.
Some traders might say that emotions and psychology don’t matter when placing a trade and I think, for some (few), it might be true. Clicking the mouse button, in those conditions, for them is just as another thing they do, no more nor less complicated than that. As straightforward as breathing, or speaking, blinking. They might be naturally like this – not influenced by the pressure of having money on the line. It doesn’t mean that they are fearless individuals, who love risks on a daily basis. It’s not like bungee jumping, or skydiving. However, you do need some degree of emotionlessness (it such word is even allowed), but unfortunately not everyone is like this and the majority has to learn to acquire such skill to be a consistent, perfect trader.
The perfect trader just clicks the button, he doesn’t think of anything else.
If he really is thinking about something, the perfect trader is thinking that in order to have a profit, he has to at least place the trade, to put himself out there. In other words, taking the risk of potentially losing a little money to probably make some. This risk is individually defined by every trader, in every setup, for every position etc. but it needs to be defined and accepted. One might say “I’m okay with losing 20cent/share with the probable outcome of making 60c/share”. Other might give themself less of a risk, or vicecersa. One point is common in every step: you need acceptance of the amount that is risked. Such risk shouldn’t make you scared of the trade: if you are, it means that 1) the risk is too high, 2) the reward is too little or 3) you’re not ready yet. Every business, let alone trading, has some level of risk involved. Our risk is based on some chart level, or our sentiment (don’t adivse that) etc but is clearly defined; other business have the same.
For example, a restaurant works in the same way. Every day, whether they have bookings or not, they open the doors, hire the staff, use gas/electricity, buy ingredients etc. This is their risk. Even before knowing that they will have clients (and they might very well not have any) they open and take the risk of not cooking any food that day. Their profit is of course what they sell to you, which is going to be priced accordingly to break even with all the expenses mentioned before, plus some more to have a little profit. Plus tips.
We take for granted that a restaurant opens each day (or a defined set of days), but why don’t we “open” our trade when we see fit?
The answer is long and complicated. Worst part is, not only it deals with how we see money (which is connected with what we were taught as children about money) and what society allows, but also what OUR relationship with money is. No matter if we are rich or poor. In the easiest possible way, we are built and tuned to NOT waste or lose money and bad trading can be the fastest way to lose it. There are endless stories of traders where they either had a massive losing trade (6 figures ones) or even more frequently lost all their equity/savings/house/car etc. On a single trade. I’m not going to write about the risks of our business but just remember that they are there and we need to stay safe. Taking a risk to place a trade does not mean use all of your equity or (worse) all yout buying power on one trade. There is calculated, contained, defined risk and there is large, uncontrolled, foolish, sensless and irrational RISK. The second one is avoidable! But it needs the first kind to be on point. There are risks involved with trading, yes. However, we decide how much we risk, for how long and in which way: we have to exploit this freedom and master reasonable, defined and acceptable risk. In other words,
We have to rearrange our priorities the other way around: it’s okay to risk some, as long as it is defined beforehand and accepted in full. That’s the only way we can place a trade and exploit a probable, profitable outcome.
This stands at the base of how trading of financial instruments work. You have to be okay with risking a little, at least an amount we see are okay with. Without such risk, we can’t make some profits, which are only there after we open a trade (duuh). So simple to think and reason about it, a little harder to do. That’s why, besides a calculator and some water close to my mouse, i will also have a post it saying…
CLICK THE DAMN MOUSE BUTTON!
#clickthatbutton
PS: If your family/partner/best friends/pet know you are trading, talk to them. Make them read this post, make them understand what you are doing. It’s going to be extremely helpful for building your skillset. Which is, by the way, the topic for a future Thinking Trading post!
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