I’m going to tell you about a simple check you can do for every trade to help avoid one of the worst mistakes losing traders make and make the best out of trades that don’t work out.
One of the biggest challenges many traders face is how to handle being wrong. The combination of your analysis being wrong and losing money can cause account destroying behaviour patterns such as moving a stop loss to give it room to turn around and re-entering failed trades over and over.
Left unchecked these habits can let 1 simple trade become a major disaster leading to a desperate “got to make it back ASAP” spree that inevitably ends in tears.A strong need to be right (ego) is a massive cause of failure for retail traders. You can see it all over the place on Internet forums and social media.
People who argue with each other - especially the ones who will argue "to the death" that their view of the world is “right” and anyone who disagrees with them is “wrong” – are rarely successful at this business.
On the flip side the best traders respect other’s methods and understand that people are different and so is what works for them. They also understand that anything can and does happen in the markets and manage their risk and edge to win long term. They also understand that any form of drama has absolutely no place in a situation where one needs to be in a good, calm and objective state to make sound decisions.
Add this step to every trade you take
If you want to systematically eradicate any unwanted tendency to need to be right from your trading do this:
As part of your trade checklist, add a step called “if I’m wrong” or “alternate scenario”.
In the Elliot Wave principle there is an analysis step called the ‘point of ruin’ where your wave count is invalidated if price moves to a certain level. Many analysts also map out alternate counts beforehand so they can quickly switch sides.
The alternate scenario step prepares you mentally and emotionally for the event of ‘being wrong’ and opens your mind up to the possibilities and opportunities if that is the case.
So just add 3 words “If I’m wrong” and analyse the alternate scenario before you put on the trade. Do this for every trade and you’ll work that need to be right out of your system.
I’ll leave you with my favourite quote from Paul Tudor Jones:
“Don’t be a hero, don’t have an ego. Always question yourself and your ability. Don’t ever think you are very good at this – the second you do – you are dead…”