In trading most new traders allow hope and fear to dictate their trading. They have a losing trade and instead of selling it and getting out they instead hope it will come back to even and fight a trend allowing their loss to grow bigger. Another error for new traders is that when they have a winning trade they fear that the profit will disappear so they sell for a small gain and miss the bigger trend that could emerge in their favor. When hope and fear controls the trader they end up with big losses and small gains. A formula for ruin.
Instead the successful trader is fearful of losses getting bigger so they sell quickly when losing when their stops are hit. They are only risking a maximum of 1% of their capital on any one trade if their stop loss is reached. A successful trader puts their stop losses at price levels that should not be hit unless the trade is wrong. Winning traders are able to think clearly and trade rationally knowing exactly what they are risking, when their stop is hit, they get out. This enables them to keep all their losses small. Traders that position size correctly have little fear and stress in their trading because they have virtually eliminated the danger of having big losses.
When a trade is immediately a winner for a trend trader they hope it will run 100 points in their favor. Trend traders enable this to be possible with a trailing stop, they do not get out of a winning trade until a key price reversal has happened that tells them that the trend is actually reversing. Trend followers are able to be greedy and go after the big wins during trends because they can let their winning trades run.
Good traders are fearful of losses growing bigger and hope that their winners will continue to move in their favor. This mindset allows them to be on the right side of moves and avoid any huge losses. This is why the best traders in the world use reactive technical analysis and win consistently. Do you want to join their club? Then do not let fear and hope dictate your trading decisions but buy other’s fear during dips in up trends, sell into other’s greed when markets get overbought. Trade the trader, don’t let the market emotionally manipulate you. The journey in trading is about finding the right signals to trade off the emotions of other traders and investors instead of being tossed around emotionally by the market yourself.