|Limit pain for smarter swing trades|
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This is a major problem because trading is a decision makers game. Everything we do requires a well thought out decision. We are not mindless 9-5 cubicle drones. We constantly have to make good decisions in order to make money.
Here is the problem. To make good decisions we must be at our best. However, trading with our own money on the line puts us at our worst. Fear and greed cause us to do things our logical minds know we should not do.
Ever taken yourself out of a great trade early for no reason other than the fear of losing your small profit? That's your brains emotional center limiting pain even when the logical you knows otherwise.
Legendary trader Paul Tudor Jones understood this:
"That cotton trade was almost a deal breaker for me. It was the point that I said, 'Mr. Stupid, why risk everything on one trade? Why not make your life pursuit of happiness rather than pain.'"Everything Tudor Jones does is an effort to limit pain. By limiting pain, we make better decisions and put ourselves in the best possible position to win.
Here, Mr. Jones describes how trading too big caused him pain. Many traders fall into this trap. They do not limit risk and position size, and trade too big for their accounts. This type of trading leads to bad decisions, along with sleepless nights.
Other pain causing trading leaks include, but are not limited to watching financial news mongers like CNBC, mindlessly following the Twitterati, chasing stocks, micro-managing positions and trading against the trend.
If you find yourself making bad decisions, do everything you can to limit pain in your trading. At the very least you'll sleep better.
Quote 1: Nehru on Caution as Risk
Quote 2: Bruce Lee on Creating Opportunity
Quote 3: Machiavelli on Risk Management
Quote 4: Michael Jordan on Limits and Trading Scared
Quote 5: Will Smith on the Past, Present and Future
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