Every trader life cycleThe Trader's Cycle
The trader's cycle is the time span between the first replenishment of the deposit and its total loss. The cycle is divided into four parts, each of which corresponds to a different condition of the trader.
Every trader is in one of the stages of the trader's cycle; it is impossible to avoid the cycle by trading continuously. However, by splitting into a "cycle," you may lengthen the stages and reduce your losses.
The "trader's cycle" phases:
"Stability" is the initial step.
The trader is in a condition of equilibrium, regulates his emotions, initiates trades only on his system entry points, does not engage in high-frequency trading, employs stop losses, monitors risk management, treats losses properly, and lives his life throughout the first phase.
The second stage is known as "sudden impact."
In the second phase, an incident occurs in the life of a trader that throws him off balance psychologically. A stunning incident for a trader is a large loss that wipes out the results of his efforts for an extended period of time. In general, the major causes of "shock" include neglecting risk management and not employing stop losses, as well as a series of transactions closed by stop losses in system trading in accordance with all of the trader's trading system regulations.
A unexpected blow can also be caused by technical errors: a forgotten or failed order, technical issues with a broker or equipment at the worst possible time.
The core of the second phase is that the trader experiences psychological trauma, which causes him to lose his psychological equilibrium and engage in illogical behavior.
The third stage is referred to as "risk rise."
In the third phase, the trader awakens with a desire to recover his losses, which causes him to raise the volume of positions, increase leverage, refuse to apply stop losses, depart from risk management, and average positions, which leads to irreversible repercussions.
The trader deviates from another critical approach - consistent profit taking. He stops taking profits from the market, constantly desiring more, as a result of which he misses profits and awakens within himself the infamous feeling of missed profit - FOMO (The fear of missing out), which in turn feeds the trader's psychological trauma and causes him to behave aggressively in the market.
The trader has a "perception filter": he begins to automatically reject any market information and signals that contradict his established abnormally high confidence in the market's future direction.
The fourth stage is "collapse."
The trader's position is liquidated when the market moves against him, and he is left with no money. On the one hand, the trader has lost everything; on the other hand, he feels some relief and begins to behave objectively, abandoning wishful thinking.
After putting himself in order and returning to normal life, the trader begins to evaluate blunders. After dealing with the mistakes, the trader pledges himself not to repeat them and not to break from his trading strategy, but vows are broken over time, and the cycle continues.
Repetition of the cycle
After the "first round," most rookie traders abandon trading permanently, blaming the market and condemned "manipulators" for everything. Another, smaller group of traders has the courage to accept their mistakes and return to trading at a higher level.
After a period, the cycle repeats for most merchants, and they are once again separated into two groups, with the majority of them leaving the market for good.
How can you break the cycle?
Every trader should embrace and realize the fact that the trader's cycle is inevitable, therefore, he should take efforts in advance to assist "soften the fall". Here are some practical suggestions.
Rest and recuperation
Every year, the work of a trader becomes more difficult: new patterns emerge, more and more variables must be considered, which increases the emotional load many times over, so rest and recovery are critical: the right approach to leisure time will help to avoid emotional burnout and will "reboot" you, completely clearing from thoughts, allowing you to return to your favorite work with renewed vigor. Take regular breaks from trading, vacations, and living life, because the aim of your trade is to increase the quality of your life. Does your life improve if you make a lot of money but are miserable? Look for new interests and experiment with new things. Recommendations for healing include bathing, swimming in a pool, massage, meditation, winter swimming, spending time in nature, and traveling.
Lifestyle
Your lifestyle, whether you like it or not, will be reflected in your trading, so don't get too caught up in trading - satisfy yourself and your loved ones by spending gains and developing yourself.
Eat, travel, and live life to the fullest. This will undoubtedly boost your attitude and, as a result, the outcome.
Sport influences your physical health, which in turn affects your mental health, and mental health allows you to be more productive and balanced for longer periods of time. Also, keep your mental surroundings in mind and limit your time spent on devices and news sources.
Pay attention to your health, thoughts, nutrition, lifestyle, sleep, and connections with loved ones.
Trading strategy
The attitude to trading is the foundation that may both save you from the "trader's cycle" and push you into it. Here are a few highlights:
1. Risk assessment.
Maintain strict risk management and never, ever overstate dangers. Diversify your cash in several areas to ensure that you cannot gamble too much on one trade. Divide your trading deposit, for example, into four pieces and transfer cash to separate exchanges and wallets.
This strategy will have a significant psychological influence on you, so that if you lose, you will only lose a portion of the cash. Even if you let go a little when transferring cash from one account to another, your brain will remember why you split and withdrawn the funds, and your emotions will have time to settle.
2. Profit obsession.
Fix locations in sections, always leaving a little bit out of the transaction. Using this profit-taking approach, you will skim the juiciest milk from winning transactions and eliminate FOMO, which will benefit your trading.
3. Taking an asset from the watchlist.
Remove the asset from your watchlist and cease watching it for a time if you still did not follow the strategy of frequent profit taking and closed the position fully.
Why would you do it? Assume that once you've established your successful position, the price rises by another 10-20-30%. How will you react? Most likely, you will have FOMO (fear of missing out), return to the transaction, and the price will then reverse.
To avoid this, either fix positions in parts depending on the balance of the position rather than the beginning volume, or do not open the chart after closing the trade.
4. A sequence of stop losses
Leave trading for a day if you close two transactions in a row on stop losses, since failing trades produce unpleasant emotions, which lead to bad judgments, and bad decisions lead to a desire to recover.
It is critical to learn to track your mental condition and step away from the terminal as soon as possible.
Workspace
The workplace should be a quiet and pleasant setting where you can concentrate and nothing will distract you from your task.
The trading system
Your trading system is critical to your success. You must design it based on your trading strategy and risk tolerance.
The trading system should comprise the following components:
Risk administration.
A collection of entrance points.
A collection of indicators.
Self-control techniques.
Profit safeguard approach.
Transferring positions to breakeven is a strategy.
Various trading methods and tools are available.
Make plans for profit distribution and withdrawal.
A set of guidelines "What should I do if...".
Trader's journal, where you will keep track of your transactions.
Savings and income sources
To avoid an urgent need to recoup while incurring a major loss, it is vital to save - develop an airbag for 6-12 months of a pleasant living and do not squander it. Savings will be ineffective even in the best-case scenario, but the advantages of the "airbag" are difficult to overestimate. Such accumulations will improve your psychological state since you will be more confident in the future and will not tear your hair out by launching a "transaction for the sake of a deal" and anticipating a quick payoff.
It is also vital to generate "cash flows" (other sources of income) for yourself outside of trading in order to increase your passive profit.
Profits and interruptions are reduced to zero.
"Crashes to zero" and samsara in the shape of a "trader's cycle" are unavoidable, therefore you must plan for "rainy days" by taking action ahead of time.
The finest traders can maintain equilibrium for far longer, but they also have breakdowns. Don't think of yourself as an exception. End collapses, extract winnings, and build passive income streams since the ultimate purpose of your trade is to improve the quality of your life. Keep in mind that the funds in your brokerage account do not belong to you, and anything might happen to the broker.
Regular withdrawal of cash ensures a constant and comfortable quality of living, since if you lose control of yourself, you will lose just a portion of the assets, not all of them. Create bulletproof stages that will allow your capital curve to increase indefinitely.
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