Trade Tips

Is being wrong really so bad?

When trading the markets, it's more common to be wrong than right. There are many ways to be wrong. You can misread a chart pattern, since interpreting a chart is largely a matter of subjective interpretation. You can falsely anticipate what the market will do next, or you can simply commit too much capital to a trading strategy that just may not pan out in the long run. Novice traders, in particular, are infamous for needing to be right. This natural, human tendency is so powerful that novice traders engage in unproductive trading behaviors to avoid admitting that they are wrong. They might hold on to a losing trade, for example, to keep losses on paper. They may procrastinate or put off making a trade in an effort to avoid facing the consequences of a bad trading idea. In many ways, a need to be right can be stifling. Rather than feel free and creative, a trader who consciously or unconsciously needs to be right may hold back at critical moments of trading. When you are inhibited and afraid, you avoid making trades. And unless you make trades in a variety of market conditions, you'll never hone your trading skills and master the markets. To trade like a master, it is vital to stay calm, open, and ready to trade with a winning edge.

Is being wrong really so bad? Many people have trouble admitting they are wrong. It can be difficult to admit we are wrong. It hurts. We tend to place great psychological significance on negative feedback. For example, when we are wrong, it is as if parents or teachers are criticizing us for doing something morally wrong. But this is a false assumption. When we are wrong, or make a mistake, we are not doing anything morally wrong. We are just being human. We all make mistakes, and it is vital to take setbacks in stride. If you can learn to downplay the emotional significance of being wrong, you will feel calmer and can trade more freely and creatively.

Another reason we hate being wrong is that we have an irrational need to be perfect. We often assume that unless we are always right, we will not be successful. This is especially true when trading. Every dollar we lose may often require the effort of making two dollars to make up the difference. It's natural to want to be perfect and never lose. But we don't always need to be right. We learn to assume that we always need to be right in school. In school, we were usually allowed only one chance to turn in a term paper or take a test. In most school settings, you can't retake a test or rewrite a term paper, and thus, you can't learn to hone your skills. Many people carry over this mindset into trading. But it doesn't need to apply. If you make small practice trades, for example, you can make a trade, learn from your mistakes, and make a new trade. Over time, you'll hone your trading skills. Since risk is managed, you can make mistakes and learn from them. There's nothing to fear.

There's no reason to kick yourself for making a mistake. You're human. You are allowed to be wrong. Don't be afraid to accept your limitations. If you allow yourself to be wrong, you will allow yourself to trade more freely, and over time, you'll hone your trading skills to the point that you will trade the markets skillfully and profitably.

This article was taken from INNERWORTH

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