Many traders fail because of their inability to deal with the emotions of trading. Despite thorough analysis and sound methodology for trading, many failed to recognize their own limits for tolerance and risk, resulting in loss of equity. These types of traders rarely progress beyond the level of textbook knowledge in mediocrity as traders. Success in trading requires more than just a comprehensive study of technical and fundamental analysis. It also requires the careful orchestration of risk management, disciplined, and patience, and keeping tight control of the emotions of greed and fear.
What is risk? For most of us, our knowledge and experience of the relationship between risk and reward is limited to gambling and other events of chance. However, progress throughout history including those that are political, social, or economical, have been achieved through various channels of problem-solving, which often meant taking risks. People realize that by identifying past events, they could anticipate predictable results for the future. The desire to see the future and to choose based on that knowledge is inherent in all of us. The search for this knowledge is what led Pascal to the discovery of the theory of probability, and thus began the study of statistics and the science of quantifying risk. By understanding the nature of risk, its consequences and possibilities, we have been able to transform her fears of the unknown into a catalyst that drives the advancement of science, technology, business, and the quality of life we experience.
Risk taking is manifested in a wide range of their decision-making processes, from having children to buying insurance and doing estate planning, from choosing a career to purchasing an automobile. It is present in her willingness to accept mistakes and failure, with the intent of moving forward toward the possibility of success. The advancement of technology and the overwhelming presence of computers to aid our every day task, and the evolution of the Internet would not be feasible without embracing the nature of risk in managing it to guide their vision of the future.
Many individuals equate trading with gambling for the obvious reason of wagering capital in the hopes of winning or profiting from that risk. The qualities that make up a good gambler are also evident in a good trader. They're always in control of their emotions. But how do you stay calm when you are losing money? Successful traders will admit to being wrong and accept a small loss. They understand what risk is. Rather than avoiding it, they learned the value of risk management as a tool for assessing the profit potential in the marketplace.
Like gambling, trading is a fascinating method of obtaining money, not from labor, but from a game of chance. It inspires their passion for risk-taking, but without the social stigma of gambling. Trading offers the opportunity to realize one's dreams of freedom, accumulation of wealth, and now, with the growth of online trading to the Internet, the sophistication of partaking in technological advances.
However, trading should never be an alternative to gambling. While gambling require some skill and money management, a large part of the gambler's success relies on luck. It is easy to convince yourself that this is your lucky day, or even to be so bold as to think you have an instinct for recognizing good fortune. But luck is only one outcome of probability, and it plays and inconsequential role in the constant success of the trader.
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