When entering a trade, a trader is always optimistic, certain that the market will prove them right and there is no doubt in their mind that their analysis is correct.
If or when the market turns against them, a trader’s ego can be a dangerous weakness. You see, the market can move in a direction opposite to a trader’s prediction for a lot longer than a trader can remain solvent (or sane) and a trader with a high ego may continue to think he is right about his analysis even when the market persists to travel in a direction opposite to the trader’s prediction.
How do you fight your trader’s optimism?
Know upfront that even successful traders can be profitable when only correct about maybe 50% of their trades, so when planning a trade, think of the worst case scenario, and set your Stop Loss levels with a pessimistic outlook in mind.
Learn that successful traders profit from not limiting their upside risk, rather than their downside risk. This means that great investors know to cut their losses short and do not get anxious when winning, looking to cash their profits early.
Having a thorough risk management plan is crucial to a successful trading strategy and planning with the knowledge that you won’t always be right, no matter how much you think you will be, can help you react correctly when you experience a loss. Keeping your ego under control can help you achieve overall trading success.