Fear – To make money in trading you must be willing to take some risk. If Nifty is trading at all time high, Do not be afraid to take long or Short.The more you are scare of losing money the more likely you could lose. Bullish won’t dare to buy, bearish won’t dare to sell. Stick to Your trading strategy and Trading Plan. A little bit of cautiousness is alright but trading is a game of risk and the more calculated risk you take the higher your chances of winning.
Impatience – You have a trading plan and strategies that tell you to enter a position only when certain conditions are met. But time and time again you jump in early before those conditions were met and end up losing because of impatience. There is a high chance of a retracement in a trend but you find yourself always buying at the high and selling at the low because you worry that you might miss the boat. Thats why being calm and patient could be the different between success and failure in trading.
Stress – You are on a losing streak and must be feeling down as Index trading at all time high but your trading is at all time low. Trading used to be a joy but now become a pain. If you are in this situation, don’t force yourself to trade. Your thoughts are likely to be irrational, not prudent and you are likely to lose even more. You need to get out of the markets completely for a few days and think of ways to get back your confidence before trading again. Market are there forever our main aim is to survive and strike hard when opportunity is in our favor.
Let me give you an example: If you go to a casino and bet everything you have on “red”, then you have a 49% chance of doubling your money and a 51% chance of losing everything. The same applies to trading: You can make a lot of money if you are risking a lot, but then risk of ruin is very high. You need to find a healthy balance between risk and reward.
Let’s say you define “ruin” as losing 20% of your account, and you define “success” as making 20% profits. Having a trading system with past performance results let you calculate the “risk of ruin” and “chance of success”.
Your risk of ruin should be always less than 5%, and your chance of success should be 5-10 times higher, e.g. if your risk of ruin is 4%, then your chance of success should be 40% or higher.