Weekly Motivation - Psychology in The Trade

PSYCHOLOGY IN THE TRADE

How many times have you been in a trade and taken a profit only to see the market roar significantly further in the direction of your original position? How many times have you held on to a position for what looked like a significant move developing, only to see your nice paper profit disappear and perhaps turn into a loss?

Of course if you have traded for any length of time you have experienced both of these situations. How do you avoid them? One of the keys to having the discipline to stay in the game is to make peace with the fact that you simply cannot avoid them.
I try to remember these three points while in a trade:

(i)The market can go anywhere. There are things less likely but virtually nothing is impossible. Don't get caught thinking the market can't go any lower or higher, because in those cases it usually does.

(ii) Remember that what happened in the last trade is of little significance to the current trade you are in. In fact it may actually have an inverse relationship. Do not change your exit plan based on the meaninglessly small sample size of your last trade and or last few trades.

(iii)The large majority of the time short term day traders, or swing traders who are in for a few days, are going to be more successful by taking profits while the market is going your way. Pay yourself!