If most traders would learn to sit on their hands 50 percent of the time, they would make a lot more money – Bill Lipschutz
Assume that there are two traders, Akshay and Binod (Yepp, Binod is back 😉😉)
Akshay: A person with high emotional quotient (very sensitive to his emotions).
Binod: A person with low emotional quotient (less sensitive to his emotions).
Give the same profitable trading strategy to Akshay and Binod. What do you think would be the annual returns of each of them? Let me give you the options:
- Akshay will outperform Binod
- Binod will outperform Akshay
- They will have the same returns
A novice like me would be of the view that since the strategies are same, they should have the same returns.
But, the correct answer is “Binod will outperform Akshay both financially and emotionally“.
It is our emotions that we face after making a loss/profit that leads us to make irrational decisions. Those irrational decisions lead to more losses and leading to a heavy downpour of emotions. The cycle continues until the account blows up.
This is probably the reason why Algorithmic traders have become so popular in the last decade alone because it takes out the human emotions from the equation.
It is not the strategy that is at fault, which many retail traders often blame when they face a string of losses.
The actual importance of strategy, risk management and winning psychology to make a profitable trading system is summarized by the following pie chart.
MarketScanner on Youtube
MarketScanner has teamed up with Miss. Hiral Shah, a stock market trading psychologist to help the retail traders understand the winning psychology which forms 50% part of a profitable trading system.
We will be releasing a series of videos on Youtube on psychological aspects of a trading system. Here is a trailer of the series.
Do Like, share and subscribe MarketScanner on Youtube!