This week, Dr. Kenneth Reid brings you a Hawkeye Mindset Minute.
We trade to win and most traders define a ‘win’ as a trade that makes money. But in my experience as a trading coach most aspiring traders over-focus on the money, which, paradoxically, causes unnecessary losses. I call this vicious circle the Money Trap.
Let me explain.
In trading and in life, money is a ‘hot topic’. A study of 4,500 couples revealed that arguments over money are by far the top predictor of divorce. Why? In marriages, arguments about money trigger core security and self-worth issues. As so it is in trading.
In trading, two things happen to those who over-focus on money.
First, you will trigger your biological imperative to avoid taking the loss, because your security is at stake. That’s when then things get slippery and you will be tempted to trade-not-to-lose. This means you will not manage your trade according to the Hawkeye rules (or any rational rules.)
Second, when we are overly preoccupied with money (security), our field of attention narrows down (tunnel vision), so that we are very likely to miss the obvious. We will micro-focus and micro-manage our trades. This loss of perspective will get us shaken out of good trades and our self-esteem will plummet.
Trading well requires that we condition ourselves to do the opposite of what human nature urges us to do. It’s not easy, but changing just this one thing about your trading could make it possible for you to stay in winning trades longer.
Rx: To avoid the Money Trap, consider putting some tape or a piece of paper over your P&L and trade without reference to it until the end of the day. Along with that tactic, shift your attention from ‘the money’ to your Method and define a ‘win’ as a trade in which you carefully followed your rules, regardless of the monetary result. By doing this, your security and self-worth are not at stake with each and every trade. Then you can trade-to-win and not sabotage yourself.
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