Lesson 3: know when to walk away and know when to run
This third lesson is a dramatic articulation of the fact that speculation can be a dangerous exercise. While you’re not likely to encounter pistol-toting hustlers, your own bad decisions can be an equally threatening force when it comes to your longevity as a trader. Whether it is external factors (such as increased volatility) or because of personal performance, there are times when you have to be willing to step away (or run away) from participating in the markets. One salient example for active traders to step away is when things start to get emotional. The very good or very bad trades create emotional responses that cloud objective decision making and skew perceptions of risk. Traders on a losing streak inevitably end up taking trades that they wouldn’t ordinarily take to try and compensate for losses. Likewise, traders on a winning streak tend to get overconfident and take trades they ordinarily would pass up because they feel they can do no wrong. Either way, when things get emotional, that is one red flag traders need to recognize as a signal to step back.
Lesson 4: never count your money when you’re sittin’ at the table
We’ve all grown up learning table manners, yet a very few of them have been as practical as this. For most online investors, the fact that you count your winnings at the table isn’t so much a social faux pas (because nobody is there except for you) as it is a psychological one. Traders who focus on their profit and loss (P&L) during trading hours can typically become distracted by past performance instead of keeping their eyes on the market in front of them. To toss another analogy into the mix, it is akin to a goalie staring at the scoreboard instead of keeping their attention in the game. Looking at the money tends to provoke emotional reactions (e.g. ‘I made lots of money therefore I am smart, savvy etc) which as lesson 3 highlighted, leads to poor decision making and ultimately poor outcomes.