Your Psychological Comfort Zone In Trading
Jerry is a full time professional trader. He doesn't trade a very large account, only about $250,000 from family and friends and a few clients who each gave him about $50,000. He takes a conservative approach to risk, risking about $500 on the three to four trades he makes a day. When he loses $500 on a particular day, he stops trading for that day. He figures that he's just not in the zone, and better stand aside and start fresh the next trading day. There is something about losing $500 in a day that bothers him, and on those rare occasions that it happens, his confidence is shaken, so shaken that he has trouble trading. He would like to make about $500 a day on average every day, but he can't seem to do it. Sure, he makes close to $500 on some days, but after a few days of achieving such profitability, he gets nervous, makes a few trading mistakes, and starts losing. Trading experts have noted that Jerry is not alone in reaching a ceiling on profitability. Traders have their comfort zone and it's very hard to break out of this safe place to trade at greater levels of profitability.
Why is Jerry having problems? Why can't he leave his comfort zone? First, he may be striving for unrealistic goals. He may not have the trading skills to make $500 a day. A profit of $500 a day is about $10,000 a month, and over $120,000 a year, which is almost a 50% return on his account. Some traders make such a return, but it may not happen for others. Putting pressure on yourself to reach an unrealistic goal is probably going to cause stress that interferes with cultivating the calm, objective mindset required for profitable trading. Second, Jerry may not be willing to take the extreme risks required to make $500 a day. You've got to risk money to make money. But risks are often difficult to take. If Jerry wants to make an average of $500 a day, he must be willing to take more risks and trade more aggressively. The question is whether or not he wants to take such risks. Again, unless he is a natural born risk taker, such risk levels may interfere with his ability to trade calmly and rationally.
In the end, Jerry must learn to respect his comfort zone. Sometimes you have to accept what you can do and just do your best. Some days, everything will click. On those days you can push yourself a little to make more profits than usual. On other days, however, you will not do as well. You must learn to adjust your risk taking so that you can make a great deal of money on a "good" day and lose relatively little on a "bad" day. It is useful to examine your trading performance carefully and gauge market conditions and trading strategies that work well for you. Study how you perform and identify the conditions when you perform at your best. By examining your past performance, you can identify the specific trading strategies, market conditions, and psychological conditions that are associated with winning trades. After you gain such insight, you can adjust your risk depending on circumstances. If the conditions are right in that you are feeling good, and feel you have a winning psychological edge, you can learn to move beyond your comfort zone. Soon, you will expand your comfort zone and build up the skills and confidence to trade beyond your comfort zone. It's a tricky business, though. If you push yourself too far and too fast, you will feel so stressed out that you will choke under the pressure. But if you make ambitious, yet realistic, goals, and appreciate your comfort zone, you will build up the skills you need to reach ever-greater levels of trading performance.
Why is Jerry having problems? Why can't he leave his comfort zone? First, he may be striving for unrealistic goals. He may not have the trading skills to make $500 a day. A profit of $500 a day is about $10,000 a month, and over $120,000 a year, which is almost a 50% return on his account. Some traders make such a return, but it may not happen for others. Putting pressure on yourself to reach an unrealistic goal is probably going to cause stress that interferes with cultivating the calm, objective mindset required for profitable trading. Second, Jerry may not be willing to take the extreme risks required to make $500 a day. You've got to risk money to make money. But risks are often difficult to take. If Jerry wants to make an average of $500 a day, he must be willing to take more risks and trade more aggressively. The question is whether or not he wants to take such risks. Again, unless he is a natural born risk taker, such risk levels may interfere with his ability to trade calmly and rationally.
In the end, Jerry must learn to respect his comfort zone. Sometimes you have to accept what you can do and just do your best. Some days, everything will click. On those days you can push yourself a little to make more profits than usual. On other days, however, you will not do as well. You must learn to adjust your risk taking so that you can make a great deal of money on a "good" day and lose relatively little on a "bad" day. It is useful to examine your trading performance carefully and gauge market conditions and trading strategies that work well for you. Study how you perform and identify the conditions when you perform at your best. By examining your past performance, you can identify the specific trading strategies, market conditions, and psychological conditions that are associated with winning trades. After you gain such insight, you can adjust your risk depending on circumstances. If the conditions are right in that you are feeling good, and feel you have a winning psychological edge, you can learn to move beyond your comfort zone. Soon, you will expand your comfort zone and build up the skills and confidence to trade beyond your comfort zone. It's a tricky business, though. If you push yourself too far and too fast, you will feel so stressed out that you will choke under the pressure. But if you make ambitious, yet realistic, goals, and appreciate your comfort zone, you will build up the skills you need to reach ever-greater levels of trading performance.
posted by nomadhunter at 4:42 AM
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