In the following paragraphs we’re going to look into the concept of negative and positive trades.
We will note that good investments are a result of making ‘good trading decisions’ but alas may still have ‘bad outcomes’. IOTA ranking
Alternatively, bad trades are a result of making ‘bad decisions’ and on occasion could possibly bring about ‘good outcomes’.
The trader’s best tool in breaking the mildew of most novices who lose wads of money in the market is to focus only on making good trades, and worrying less about good or bad outcomes.
In our Workshops we make an effort to deliver students strategies which help identify the best trades to suit particular and personal trading specifications. We now have an amount of trading strategies that can be used to reap rewards from the stock market, with each strategy by using a particular structure or ‘setup’ to formulate a smart trade. Most traders however don’t have such a structure, and as a result, too often give in to the dreaded ‘impulse trade’.
This is a typically overlooked concept in making an investment literature and refers to an unstructured, non-method, or non-setup trade.
Succumbing to Spontaneity
We’ve all recently been there!
You look at a chart, suddenly start to see the price move in one direction or the other, or the charts might form a short-term style, and we jump in before considering risk/return, other open positions, or a number of the other key factors we need to think about before entering a trade.
Various other times, it can feel like we place the trade on programmed start. You may even find yourself staring at a recently opened position thinking “Did I just place that? ”
All of these conditions can be summed up in one form – the impulse company.
Impulse trades are bad because they are performed without correct analysis or method. Successful investors have a particular trading method or style which serves them well, and the ritual trade is one which is done outside of this usual method. This is a bad trading decision which causes a negative trade.
But why would a trader suddenly and spontaneously break their time-tested trading formula with an impulse trade? Surely this doesn’t happen too often? Well, however this occurs constantly – even though these transactions fly in the face of reason and learned trading behaviors.
Even the most experienced traders have was a victim of the behavioral instinct trade, so if get done it yourself no longer feel too bad!
Just how it Happens
If it makes no sense, why do traders succumb to the impulse trade? Since is usual with most bad investing decisions, discover quite somewhat of organic psychology behind it.
In a nutshell, traders often succumb to the behavioral instinct trade when they’ve recently been keeping bad trades for a long time, hoping against all reason that things will ‘come good’. The situation is exacerbated when a trader knowingly – indeed, willingly – places an impulse trade, and then has to deal with additional baggage when it incurs a loss.
A single of the first emotional factors at play in the impulse trade is, unsurprisingly, risk.
Contrary to popular belief, risk is certainly not a bad thing. Risk is actually an inescapable part of playing the markets: there is always risk involved in deals – however, best organised transactions. Yet , in smart trading, a structure is in place in front side of you transaction to accommodate risk. That is certainly, associated risk is factored into the setup so the risk of loss is accepted as a portion of expected outcomes. Every time a damage occurs in these situations, it is not because of a bad/impulse operate, nor a trading mindset problem – but this is the result of adverse market conditions for the trading system.