P1: PIC/b P2: c/d QC: e/f T1: g
c04 JWBK182-McDowell April 25, 2008 15:44 Printer: Yet to come
Risk Psychology and “The Trader’s Mindset” 33drawdown to see if any old bad habits have reappeared or maybe a new
obstacle has developed that you have never experienced before. Then see
“if the shoe fits” and use the list to determine what approaches you might
be able to take to pull yourself out of a performance slump.
This list is not all inclusive; you may experience combinations of the
following issues or may have obstacles that are not even on the list. If that
is the case, jot down your notes in the “Personal Obstacles” section so that
you can create your own diagnosis and solution.1.Fear of being stopped out or fear of taking a loss.The usual reason
for this is that the trader fears failure and feels like he or she cannot
take another loss. The trader’s ego is at stake.
2.Getting out of trades too early.Anxiety is relieved by closing a posi-
tion. This is caused by a fear of position reversing and then feeling let
down. The trader has a need for instant gratification.
3.Wishing and hoping.The trader does not want to take control or take
responsibility for the trade. The trader has an inability to accept the
present reality of the marketplace.
4.Anger after a losing trade. There is a feeling of being a victim of the
markets. Unrealistic expectations lead to caring too much about a spe-
cific trade. Tying your self-worth to your success in the markets, or
needing approval from the markets, will lead to losses.
5.Trading with money you cannot afford to lose or trading with bor-
rowed money. It is desperation to view a trade as the last hope at suc-
cess. Traders fall into this trap when they are trying to be successful at
something or fear losing the chance at opportunity. Other causes are
lack of discipline and greed.
6.Adding on to a losing position (doubling down). The trader does not
want to admit the trade is wrong and hopes it will come back. The
trader’s ego is at stake.
7.Compulsive trading. A trader can be drawn to the excitement of the
markets. Addiction and gambling issues are present. Such traders need
to feel in the game. They have difficulty when not trading, such as on
weekends—they are obsessed with trading.
8.Excessive joy after a winning trade. Tying your self-worth to the mar-
kets. The trader feels unrealistically “in control” of the markets.
9.Stagnant or poor trading account profits—limiting profits.In this sit-
uation, a trader might feel undeserving of being successful—of making
money or profits. Usually, this involves psychological issues such as
poor self-esteem.