Trading with WRONG expectations... #1
Almost all traders understand the concept of a drawdown - a period of loss making. A trader is not going to have a 100% trade win rate - there will be losing trades - and there will be times of consecutive losing trades.
For some reason, despite understanding this concept, many traders don't ACCEPT this concept. Let me explain... As soon as a trader hits a drawdown, the reaction is panic or discouragement. The following statements could flood the mind of the trader...
'The strategy is not profitable anymore'
'I need a more profitable trading strategy'
'I am going to lose too much, so I will reduce my position sizes'
'I need to increase my position sizes to win back these losses'
'I am so angry, I am going to risk all that I have left in my account'
In other words, the trader becomes emotional and let's his emotions determine his trading decisions. This will always result in long-term failure.
Conclusion... Accept that drawdowns will happen and expect drawdowns to happen, because they will happen!
For some reason, despite understanding this concept, many traders don't ACCEPT this concept. Let me explain... As soon as a trader hits a drawdown, the reaction is panic or discouragement. The following statements could flood the mind of the trader...
'The strategy is not profitable anymore'
'I need a more profitable trading strategy'
'I am going to lose too much, so I will reduce my position sizes'
'I need to increase my position sizes to win back these losses'
'I am so angry, I am going to risk all that I have left in my account'
In other words, the trader becomes emotional and let's his emotions determine his trading decisions. This will always result in long-term failure.
Conclusion... Accept that drawdowns will happen and expect drawdowns to happen, because they will happen!