A trader\'s money management system

P1: PIC/b P2: c/d QC: e/f T1: g
c04 JWBK182-McDowell April 25, 2008 15:44 Printer: Yet to come

34 A TRADER’S MONEY MANAGEMENT SYSTEM

10.Not following your trading system. The trader doesn’t believe it really

works, or did not test it well. Maybe it does not match your personality.

Maybe you want more excitement in your trading. Or maybe you don’t

trust your own ability to choose a successful system.

11.Overthinking the trade—second guessing the trading.Fear of loss

or being wrong can paralyze a trader. A perfectionist personality can

create this problem. Causes include wanting a sure thing where sure

things don’t exist; not understanding that loss is a part of trading and

the outcome of each trade is unknown; not accepting there is risk in

trading; and not accepting the unknown.

12.Not trading the correct trade size. Dreaming the trade will be only

profitable. The trader might not fully recognize the risk and not un-

derstand the importance of money management. The trader might be

refusing to take responsibility for managing the risk, or be too lazy to

calculate proper trade size.

13.Trading too much. The trader feels a need to conquer the market.

Causes include greed and trying to get even with the market for a pre-

vious loss. The excitement of trading is similar to compulsive trading,

issue number 7.

14.Afraid to trade. No trading system in place. The trader is not comfort-

able with risk and the unknown. The trader might fear total loss or

ridicule. The trader might have a need for control. There is no confi-

dence in your trading system or in yourself.

15.Irritable after the trading day. The trader is on an emotional roller

coaster due to anger, fear, or greed. There is too much attention on

trading results and not enough on the process and learning the skill of

trading. The trader focuses on the money too much. There are unreal-

istic trading expectations.

When one of the items in this list occurs, isolate and defuse it ASAP.

From time to time issues will arise that you’ve never encountered, usually

during a growth phase when you may be testing a new approach. Identify

the issue, acknowledge and adjust. Self awareness is the key and will en-

able you to maintain profitability.

MIRROR, MIRROR ON THE WALL

Take a look in the mirror and see if you are experiencing any of the 15 de-

structive psychological trading issues we’ve listed. This exercise is similar