Detecting That You Have The Wrong Trade
This world can be simplified by thinking about things in binary. When you’re making decisions, are the choices answerable by a yes or a no? When you’re programming a computer application, is it answerable by a yes or no?
It just means that there is no “middle ground” as there are always only two scenarios when in trading; you either win or lose.
Some beginners who are new in trading or also known as trading options for dummies who have just started trading often bet large in the attempt of winning large as well. Although technically you can win big by doing this, you can also potentially lose a lot as well.
It is good if the market conditions favor you, but what if it doesn’t? You will lose pretty much most if, not all, of your assets which will ultimately lead the trader to stop trading entirely.
If you find that the market doesn’t favor you, then you either bet small from the get-go or take some stops to exit your current position.
If you do follow betting small and you find that you’re on a 10-tick loss, for example, the ideal thing to do is stop, recuperate your losses, and then enter the trade again either by putting in a larger bet or pick a position that will give you a better chance of averaging to the market price.
Do note, however, that doing the above things, you’re still wrong either way. The only thing that you’ve really done is somehow recover your lost capital, but your main purpose, I presume, in entering the market is to take huge profits, right?
If so, then you have to have that mental capacity that to recuperate your losses, you don’t want to make only one huge trade to get that back. We, humans, are pretty greedy by nature and we usually make decisions that will make us lose money, not earn it.
You have to learn how to be flexible and to swallow your pride, especially if things never really go in your way.
The problem I see is that even though we’re lost, we keep on moving forward instead of stopping and moving back.
Yeah, we sometimes succeed in trading. But if we rely on one winning trade to influence our other trades, that can just be a recipe for disaster.
In most cases, guys and gals that do this will congratulate you with a smile, but you do not smile back because you know that these people will ultimately lose their capital given enough time.
My closing point is this: if you somehow fall into bad habits, be sure to correct them. If you’re winning, still be flexible enough to change when things do not go your way.