Before 2 examples: you are going to the cinema. You have 40 USD and you buy the ticket (price is 20 USD). Before entering you checked that you lost your ticket. Will you buy ticket once more? Majority says no. The other situation, you are going to the cinema and going to buy ticket, but found that you lost 20 USD. Will you buy ticket? Majority says yes. The same situation, but we have different feeling. In the first example we lost ticket, which we had bought (we HAD SPENT money yet), in the other situation we lost money but HAD NOT SPENT money. Despite the in both situation we lost the same amount we might have different feeling (opinion) about it. The other situation: you have 110 USD and bet on the races on one horse who might win about 100 USD. After you lose you still have 10 USD. And you see that there is new opportunity, one of the horse which is not leader but if you bet on it 10 USD you might win 100. Low probability that the horse win, but if it does it you can recover your money. Will you do it? The same situation, you have 110 USD but you bet only 10 USD at first time and lose it. You still have 100 USD, and you see there is the horse if you bet on it 10 USD, you will gain 100 USD. But probability is very low. Will you do it? As you understand there are mathematical approaches to the money management and psychological. There are some methods as Kelly’s formula, or methods of losing not more than 1 or 2% from the capital and they are not bad. But there is proverb, that piece of stale bread looks different depending on are we hungry or not. If loose “not many” we can control yourself and be cool in making decision, if we lose “many”, we might break all our rules and might drop down to the gambling and tilt state. Everyone has own parameter of “many” or “few”. Don’t try to start from big bets, because it will impact on your future decisions, you might lose control doesn’t matter whether you win or lose. Sometimes we really can’t control yourself losing money, but if this sum not so important it might decrease impact on our feeling. So we can control bets and size during trading and might increase our results much more than others skills. P.S. Examples were taken from researches of Daniel Kahneman.
This is an interesting topic, but there is also a simple solution: Go ahead as long as you have edge. Money management and risk management are there to minimize risk of ruin while maximising return. I find that a lot of people are focusing on psychology and MM, before they even have edge which is a complete waste of time. When you don't know why you are getting paid, it doesn't make any sense to get into that rabbit hole. You don't need to control yourself when you don't have edge. The only thing you are supposed to do is to trade as small as possible until you figured it out so you don't blew up before you find your niche.
Thanks for answer. Many people know that smoking kills them, but continue to do it, many people know that must not eat a lot, but our brain says that it's tasty and we stuff belly. Knowledge doesn't give us edge if we can't manage ourself.
Sometime people can lose your control because the have problem in family, lost health or something like this. If believe that you can manage situations it is not. Always happens something wrong, ant topic is that if it happens don't lose too much
If you have proper discipline, nothing "outside" matters. It's quite a chore to get your brain in proper focus to trade well. Easy to make mistakes (some, serious) until you do.
Have a realistic plan for how much loss you SHOULD allow. Determine you will not, ever, no matter what, not follow your plan. This might require outside help, like having a friend or some kind of trading coach you report to that will keep onto you about it until you finally realize how dangerous losing self-control is. Hopefully, you won't end your trading career by losing too much first.
Risk management and position sizing. Learn it and one loss is not going to matter or even 7 losses as long as the losses are small and the gains several times larger than the losses. You can win only 3 times out of 10 trades and still make monies. Assume you lost $100 each of the 7 losing trades, and won $500 each time you have a winning trade. You would have $1500-$700 or a net gain of $800.
Yes, you're right. The habits you mentioned are addictions and when trading triggers your gambling addiction, it can lead to self destructive behaviour. But outside pathological habbits, there is not much self control can do for you if you don't have a profitable strategy
You should already have it calculated how much money you will lose if you sell and when you plan on selling before you even enter a position. Everyone likes to think about the money they will win, nobody likes to think about the bad side, but you have to. If you get caught like a deer in the headlights because of not planning ahead then you earned it. Play stupid games win stupid prizes.