July 13: What Separates the Dynamic Trader from the Bad One – Part 4

Welcome back, in the 4th part of the Ultimate Trading Systems article series, we’re going to discuss what separates the good dynamic trader from the bad one.

Let me tell you a little story… On a beautiful late spring afternoon, twenty-five years ago, two dynamic traders graduated from the same college. They were very much alike, these two dynamic traders. Both were better than average students, both were personable, and both – as young college graduates are – were filled with ambitious dreams for the future.

Now imagine that today we set these two dynamic traders off trading. Through a gift, they start with the same starting capital, the same trading platform, and the same trading system with precise rules for entry and exits.

Shockingly, there is a difference. After one month, one dynamic trader thought he was good and went bust, while the other dynamic trader returned a 20% profit.

Have you ever wondered, as I have, what makes this kind of difference in people’s trading? It is not always a native intelligence, talent or dedication. It is not that one dynamic trader wants success and the other does not.

The difference lies within the dynamic trader’s psychology. Your psychological mindset is likely to play a larger role in your trading career than your chosen technique or any other details associated with your day-to-day practice.

Now, I am not the only one to discover this… In his book, Trade Your Way to Financial Freedom:

http://www.meta-formula.com/tywtff

… the renowned dynamic trader and American psychologist Dr. Van Tharp discusses the role psychology plays in your trading success. He divides trading into three ‘Ingredients of Trading’. In his pie chart, System is 10%, Money Management is 30%, and 60% is psychology. He discovered that the dynamic trader’s psychology has more to do with his success than anything else does.

What exactly is your psychology?

In short, the dynamic trader’s psychology refers to your emotional responses to a given situation…In trading, fear, greed, vanity, pride, hope, jealousy, denial – all these can affect investment decisions. Although your aim in the market is to maximize your profit and minimize your risk, emotions often make this easier said than done.

For example, the dynamic trader who reacts emotionally, makes the wrong decision – such as the common mistake of holding a losing position in the belief that someday it will become a winner.

This classic mistake is called loss aversion. Loss aversion refers to the tendency for people to strongly prefer avoiding losses than acquiring gains. Some studies suggest that losses are as much as twice as psychologically powerful than gains. Loss aversion compels most traders to hold a losing stock while it plummets downward. This clouded judgment clearly contradicts the trading adage “cut your losses.”

These investors also engage in other forms of irrational behavior, like attributing success to skill, and losses to bad luck. Worst of all, this is just the tip of the iceberg when talking about the other devastating effects of trading using your emotions.

The truth of the matter is, without controlling your emotions; most new dynamic trader will lose all their money very quickly in the markets. In fact, the new dynamic trader is usually completely wiped out within the first year of trading. So, as you can see, the dynamic trader’s emotions do play a big part in determining whether you fail or succeed……..

In my next article, I’ll reveal the secrets of new thinking in technical analysis that reduces negative emotional psychology.

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This is part 4 of the Ultimate Trading Systems course.
To download your FREE copy of this entire course,
and learn the science of desiging profitable trading systems,
Click Here ==> http://www.ultimate-trading-systems.com/greatnews.htm
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