BTC/USD - Why Traders Lose In Trading Part 2 -
Updated
Hello Traders,
As you guys liked the previous educational part so much we decided to continue with that topic.
In picture 1, you can see the interdependence between fear and greed! These characteristics harm us to make good trading decisions and stay calm!
This fact is purely based on behaviour finance! This matter of fact is not only within the trader, it more lays in the market and we need to understand it. Only then we will understand the fact that emotions can control us in negative ways!
Therefore, it is so important to understand picture 2! Only then, we can act in any market situation calm and without any negative emotions! Whereas most of the people simply follow the path of the doom loop described in the graphic above, we need to think like first like a professional!
This knowledge will give us a huge advantage! We want to show you the market behaviour. With this knowledge, we then can implement it in our trading! The lack of risk and money management hinder the trader to ever be successful. The mistake you make is simple. You have the wrong mindset. Either you act greedy or fearful. This basically leads us to the next point: Your way of thinking is too short term!
You concentrate just on your current losses and wins without looking at the whole! You want profits NOW! Not later! This is one of the most emotional problems which you face!
You need to think long-term! Not looking at one trade! You need to judge your trading system over time and not after every single trade. However, most of the people do this! They question themselves if the trading strategy or approach they use is profitable! Of course, you need the right knowledge to build a profitable strategy. But to this later.
Basically, they end up falling in the doom loop again because they get too emotional with every single trade! More they hope on every loser to become a winner and cut every winner in the fear to become a loser!
The emotional behaviour is often caused by two factors:
• Wrong trading approach
• Short term thinking due to impatience
These two factors causing tremendous effects on your emotions!
Now let us explain why. When a trader starts, as you might refer this to yourself as well, we dream to become profitable day trader right! Why? – Because the profits you can make within ONE day are huge, right? This attracts us! We want fast and huge profits! However, after you started with day trading you fast recognize that it will cause more mischief within yourself than it brings the expected good things! Let us take a minute here and explain a fact, which most of you out there probably underestimate or not even think about. What is day trading? – Well, we will skip all the basic knowledge about day trading and concentrate right at the beginning on the interesting facts. The problem with day trading itself lays in the basics. You need to understand the mechanism of day trading. As you already know, you will always trade against someone else. Or in other words, if you are holding a buy EUR/USD position, someone else will hold the exact counter position. So, a sell EUR/USD.
This makes the whole story interesting because you will always have a competition! And as a trader you need to think smart who is your counterparty and what information they have. Only then you can measure if you have any chance or not in the long term! So, let us compare the different trading styles in picture 3.
We trade against computer based algorithms! This makes the story way different now! We need to understand that the execution time and the reaction is way faster than we can even imagine.
Additionally, emotions are also not present due to the use of computers. Now there is not only the emotions we have against us, but also the fact of the executions.
If you want to become successful, you first need to control your emotions and trade disciplined your trading system. However on a time horizon this thing makes the story very difficult.
As you guys liked the previous educational part so much we decided to continue with that topic.
In picture 1, you can see the interdependence between fear and greed! These characteristics harm us to make good trading decisions and stay calm!
This fact is purely based on behaviour finance! This matter of fact is not only within the trader, it more lays in the market and we need to understand it. Only then we will understand the fact that emotions can control us in negative ways!
Therefore, it is so important to understand picture 2! Only then, we can act in any market situation calm and without any negative emotions! Whereas most of the people simply follow the path of the doom loop described in the graphic above, we need to think like first like a professional!
This knowledge will give us a huge advantage! We want to show you the market behaviour. With this knowledge, we then can implement it in our trading! The lack of risk and money management hinder the trader to ever be successful. The mistake you make is simple. You have the wrong mindset. Either you act greedy or fearful. This basically leads us to the next point: Your way of thinking is too short term!
You concentrate just on your current losses and wins without looking at the whole! You want profits NOW! Not later! This is one of the most emotional problems which you face!
You need to think long-term! Not looking at one trade! You need to judge your trading system over time and not after every single trade. However, most of the people do this! They question themselves if the trading strategy or approach they use is profitable! Of course, you need the right knowledge to build a profitable strategy. But to this later.
Basically, they end up falling in the doom loop again because they get too emotional with every single trade! More they hope on every loser to become a winner and cut every winner in the fear to become a loser!
The emotional behaviour is often caused by two factors:
• Wrong trading approach
• Short term thinking due to impatience
These two factors causing tremendous effects on your emotions!
Now let us explain why. When a trader starts, as you might refer this to yourself as well, we dream to become profitable day trader right! Why? – Because the profits you can make within ONE day are huge, right? This attracts us! We want fast and huge profits! However, after you started with day trading you fast recognize that it will cause more mischief within yourself than it brings the expected good things! Let us take a minute here and explain a fact, which most of you out there probably underestimate or not even think about. What is day trading? – Well, we will skip all the basic knowledge about day trading and concentrate right at the beginning on the interesting facts. The problem with day trading itself lays in the basics. You need to understand the mechanism of day trading. As you already know, you will always trade against someone else. Or in other words, if you are holding a buy EUR/USD position, someone else will hold the exact counter position. So, a sell EUR/USD.
This makes the whole story interesting because you will always have a competition! And as a trader you need to think smart who is your counterparty and what information they have. Only then you can measure if you have any chance or not in the long term! So, let us compare the different trading styles in picture 3.
We trade against computer based algorithms! This makes the story way different now! We need to understand that the execution time and the reaction is way faster than we can even imagine.
Additionally, emotions are also not present due to the use of computers. Now there is not only the emotions we have against us, but also the fact of the executions.
If you want to become successful, you first need to control your emotions and trade disciplined your trading system. However on a time horizon this thing makes the story very difficult.
Note
Of course, there are traders out there who trade successfully short-term. But, most of them who do that are often more than 10 years in the financial market, successfully! Do you want to be stressed every single day? And face your emotions and act fast? Think about that!
Hope that helps and whish you all the best
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