Influential And Dangerous Bias In Trading
People tend to believe that after a series of losses, victory will come next. Take for example that you are playing a game throwing a coin with a capital of $ 1000. You lose three consecutive bets on the “head” side and are charged $ 100 per bet. Are you going to bet again and how much will you be at stake? Chances are you will keep betting on the head and with a bigger higher bet. Say $ 300. You do not believe that the coin’s outcome will forever display the “tail” sides. Here, traders must understand the difference of trading by throwing coins. Traders should treat each trading independently and not be affected by past results. Market conditions are constantly changing from time to time, and you can not just keep betting on “bullish” or “bearish” only. Determine trading decisions after reviewing market conditions as well as possible, and set capital at stake in any trading position based on a particular Money Management arrangement. If you lack confidence in trading then you should be able to Read more on DWHM.
People tend to limit their benefits and give more room for losses. No one likes to feel the loss. Therefore, most investors tend to hold losing positions and expect price trends in the market to be reversed immediately so that at least the trading position that initially loses it can be closed in a break-even condition. However, it often happens that the loss is even more swollen. On the other hand, if they are in profit, most investors tend to close trading positions early because they fear the profits will be lost. After that, it turns out they regret why they did not hold the trading position any longer (sound familiar?). One of the most important principles in trading is against both phenomena. In reality, some traders’ success lies in their ability to limit losses and allow profits to accrue. In English, it is known as the saying, “Cut losses short, let profits run”.
Losses are a natural part and must be experienced by all traders. However, the difference between a profitable trader and a loser trader, especially in the ability to limit losses, while forex traders who profit are able to get rid of the dangerous bias and not hesitate to cut loss. In order to be successful, the trader must understand he can “step back now to be able to fight another day”.