In trading there is a mistake that unites all traders from beginners to more experienced ones.
Trading is an activity that requires a very high dose of control: from emotional control to the actual control of risk and operations. However, there is a mistake that all traders have in common, from beginners to professionals, a mistake that the latter know how to master with greater dexterity but which in any case is a mistake that they still make. We are talking about "lack of patience" a factor that we could operationally identify as the "timing" error of entering or exiting a trade.
Unfortunately this is one of the most difficult aspects to take care of as it is the result of a lot of experience but above all of a really important work on oneself. Before the technical aspect affects the psychological aspect and we will see in this article why this mistake is often made and how to avoid making timing errors in operations.
The lack of patience in amateur traders
The amateur trader is a trader who is entering the world of direct operations on the financial markets, therefore his preparation focuses on the technical aspect, on the study of technical analysis, fundamental analysis and on the construction of his own operating method. In this sense, we therefore focus on a purely scientific method, free from psychology and the construction of a correct mental setup which is instead a fundamental aspect of the professional trader. In essence, the neophyte trader tries to understand how the market can move and how he could exploit the directionality of a market to his advantage, initially simulating the operation and then bringing it into "real" mode by operating directly with own capital.
This is the work of comparing "demo" operation and "real" operation and the first problems can be seen. Usually the amateur trader approaches real trading after the demonstration period where he was almost magically able to bring his capital into profit without many problems, while now, with his own capital, he is unable to replicate that operation which seemed so efficient. The most common mistake in this regard is lack of patience. The trader in question has a certain "hurry" in replicating what was done in the demo and therefore will lead him to carry out operations with an advance timing compared to what resulted in the demo.
The most blatant example is that of the amateur trader, who by now considers himself an expert and who manages to make very good analyzes which in retrospect turn out to be "spot on", but at the same time unable to exploit the latter due to the rush to see the realization of the movement that is predicted in the analysis. Basically, when the trader goes into the real market he is in a hurry to see the fruits of his trade, which obviously does not happen in the demo environment: a study environment, more relaxed and devoid of any psychological pressure regarding the perception of the operational risk.
The lack of patience in expert traders
In expert traders and professionals this error is less common but still present. The search for performance leads to a certain "haste" in achieving results, therefore the professional trader, even knowing that the realization of his analysis needs time to be fulfilled, could make the mistake of "missing the trade" and losing the opportunity to place a trade with optimal operational risk. The search for perfection, entering the perfect timing, could lead to loss of the trade, therefore he prefers to operate in order not to miss an opportunity on the market.
Obviously, being professionals, these traders make this "mistake" almost entirely consciously, in the sense that they manage to associate the right risk with the mistake, therefore they are profitable in the long run. How come even professionals make this mistake? Simply, even knowing that their analysis have a good percentage of completion, they enter in advance knowing all the ways to associate a risk with that error, thus avoiding unpleasant situations in terms of risk management. As can be seen, the substantial difference between a neophyte trader and a professional trader lies precisely in the association of a specific risk to each situation. In trading, calculating risk is the fundamental component for obtaining long-term results.
How to avoid making this mistake?
As we have seen in the previous two situations, both traders make this mistake but the substantial differences result in experience and consequently in the association of risk to a given market situation. The solution therefore lies in risk management work. How come? Note what the amateur trader said, that the “lack of patience” error was of less impact in the demo environment. In the demo environment, risk management is scientific, not very emotional and focused on numbers, which does not happen in a real environment where psychological pressure has a decisive impact.
In the case of the professional trader, the psychological pressure lies in the excessive pursuit of performance, which is not always a good thing in the trading field. The solution therefore lies in a systematic operation in risk management, a very difficult job for novice traders and daily bread for the professional trader. The setting of a correct risk management and compliance with the rules imposed by the scheme, represent the best solution to this problem which, going forward over time, will in any case repeat itself but with less impact.
The right work done before the operation, i.e. to firmly establish how much risk to associate with our operating day, is what is fundamental in the long run. The main problem with risk management is overestimating one’s risk, i.e. overestimating the amount of money a trader thinks he can lose without having any emotional or psychological repercussions. Starting to work on these aspects, especially for a neophyte trader, will be fundamental in his transition to a professional trader and the more you work on this aspect, the higher the probability of forging ahead and getting to make aware trading and devoid of any purely discretionary, or even better, emotional element.
Original article published on Money.it Italy 2022-11-29 08:56:00.
Original title: Trading, l’errore più comune: la mancanza di pazienza
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