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Sunday, October 26, 2008

Breaking Problem Cycles in Trading

With the stock market being as "bear" as they are right now, I thought some might enjoy or at least find it useful reading Brett Steenbarger's articles on trading psychology, especially this particular one here and the links below that article - http://traderfeed.blogspot.com/2008/10/when-good-trading-leads-to-bad-trading.html.

My own personal observations (including personal experience) in both trading and outside trading have convinced me without a doubt that problems tend to recur than not recur. I have no doubt that everyone - no matter how good a trader they are - will have their own problems recurring from time to time. The only difference between each of us is the type of problems we face and how frequently we face them. I believe trading is a lot like taichi, badminton or other specialized skills - there is no such thing as a perfect taichi practitioner, a perfect badminton player or a perfect trader. Everyone can always improve.

Novice often associate a trading problem with a loss. To a seasoned trader, a loss is not necessarily a problem. There are good losses to have (e.g. a stop loss well set and executed and part of the systems edge), and there are bad "unnecessary losses" to have (e.g. instead of executing the stop, the trader "averages down", and compounds the mistake, making the final loss much larger many times over than initially planned). Consistently and successfully executing the first category is not necessarily a problem (although this requires a proper review to make sure that the overall trading system is still okay to make sure it is a genuine non-problem), whereas the latter is almost always a problem.

Anyway, enjoy reading the linked articles. And best wishes as always.

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