Let us state it directly: In trading, just like any other discipline, you will make mistakes. To accept that you had made one, will make it easier for you to move forward. To dignify it, make rationalizations to make yourself feel better, is counterproductive.
For instance, you had engaged in a trade, late–as you had initially feared it might be risky to be so enthusiastic. This had augmented the risks. And it is highly likely that what you’re going to earn won’t be able to offset the risk that you had taken.
And just like that, you are in a bind. You convince yourself, it’s fine to take a different route, something unplanned. Alas, your impulse led you to regret it.
Rationalization likes playing with our minds this way. Instead of taking a step back, you carry on with what you know to be a mistake. You rationalize your lapse in judgment.
Following Proven Methods is NOT for the COWARDLY, It is the Path of the WISE
Doing things randomly in the trading business is a foolish business. The wisest of traders follow systems. To them, proven formulas are not clichés but beacons to profit. These traders opt to follow already practiced methods under all market conditions. Regardless of what they might their thoughts tell them, they follow through with the plan.
Others rationalize that they have already mastered trading, hence refusing systems or clear cut methods. They think they still make money out of unplanned deals. While some do benefit out of impulse, most of them do not endure.
Don’t Be Consumed by Greed and Fear
Greed can drive you to make bad decisions. Sure there might be a day wherein the market sends a lot of signals, and you have done well to catch them and make appropriate trades.
Now your focus is split; you think that you can take in more than you actually can. Greed had knocked on the front door, and you let it in. Worse, the fear of missing out had crept at the back door. So instead of following valid leads, you end up trading out of the need to make something out of nothing.
So keep your focus. Trade is useful when the conditions are sound when your plans are well-thought-out, not when you are excited about things that only appear to have potential.
Rationalizing to Stay in a Trade or Getting Out of One
It needs to be stressed that you have to have exit points. If you are devoid of the notion as to when you could get out of a trade, you might miss out on another one.
This exit will determine your profit or loss. If you see that the trade would not benefit you, get out of it. Some traders might think that they should have just used a more considerable stop loss or that they have followed some out-of-box advice that turned out to deviate mainly from trader’s strategies.
Either way, as a trader, you need to stay true to a system; you need to be wise enough to know if an endeavor will not turn out well. Easier put if your strategy dictates that you exit from a trade, follow it.
Another problem is with new traders who can’t keep within bounds of a winning trade. They become short-sighted: wanting to take in the profit as soon as it shows itself. This they do regardless if more is to be had; they fear that might lose more if they wait it out with a good trade.
Bear in mind small profits, taken immediately won’t be able to cover any losses. You may end up losing more.
Gather Your Rationalizations and Throw Them Out
In trading, rationalizing is playing a fool’s game. The only way to avoid it is to ignore it. Stay within bounds of our plan. If a method or strategy works, stick to it.
To guard yourself against rationalization, try gathering all of them through writing. Be mindful of them so that when they come up, you would do well in taking them out of your mindset.