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c04 JWBK182-McDowell April 25, 2008 15:44 Printer: Yet to come

CHAPTER 4

Risk Psychology

and “The

Trader’s

Mindset”

E

very great trader has a deep understanding of their own psychology.

This personal trading psychology affects every trade entry and every

trade exit they make and there is awareness that this psychology is

a “work in progress,” meaning that even great traders struggle with their

inner demons from time to time. Those demons might be fear, greed, or

regret. Regardless of what the demons are, the more you develop what we

call “The Trader’s Mindset” the quicker you will confront your demons and

the more success you will have in slaying them.

In every trader’s journey from novice trader to master trader and be-

yond, they need to keep an eye on the ball, and on their trading psychology.

Life will present a variety of challenges and each day will be a unique op-

portunity for you to enhance and further develop The Trader’s Mindset.

Maybe a severe draw down will test your will or the market will throw you

a curve ball. The strength (or lack there of) of your trading psychology will

be the one attribute that will set you apart from the trader on the opposite

side of your trade.

WE CALL IT “THE TRADER’S MINDSET”

There are certain traits that help traders and investors consistently profit

in the markets. Some of these traits will come naturally to each individual,

but others will need to be cultivated and acquired. It may take some time

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