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10 Ways That Traders Can Improve Decision Making

When it comes to trading, it’s often said that half the battle is against yourself. The ability to control your emotions and avoid knee-jerk reactions in a market that can easily invoke your passions is one of the most challenging aspects of becoming a successful trader.

That’s why market participants have developed (and adapted) several maxims; a compass to orient themselves through oftentime turbulent trading waters. Below are ten trading mottos which may help a trader better optimise their decision making ability.

“An investment in knowledge pays the best interest.”

This timeless quote was said by Benjamin Franklin. It reminds traders that they must invest in themselves before they can ever hope of investing profitably in the market. When it comes to making money in finance, nothing pays more than knowledge.

What is comfortable is rarely profitable.

If you struggle to get outside your comfort zone, investing will be an uphill battle. Traders must routinely get outside their own skin in order to see profitable trade opportunities. They must be able to keep their emotions and biases at bay when making any investment decision. At some point, investors must also explore other markets and trading strategies to maximize their chances for success. These actions often extend far beyond our comfort zone, and we must be able to endure situations that make us squirm.

Buy low, sell high.

If there’s one maxim to live by, it’s this one. Trading is all about buying low and selling high. While this might seem self-evident, traders make this way too complicated. Stick to realizing this vision, and never lose sight of it.

Cut your losses short and let your profits run.

This one isn’t always easy to apply because it requires a lot of practice and a great deal of expertise. Luckily, trading platforms make this process a little easier by allowing you to enter stop losses that can limit your exposure to downside risks. On the flipside, you must also learn to gauge market direction and how far a rally might go without getting too greedy.

Don’t fall in love with your position.

It doesn’t matter how great your trade looks on paper – the market doesn’t always agree with you. Not every trade idea will be a good one. Learn to live with it and move on. If a trade doesn’t go your way, know that there are better positions to be had.

Every once in a while, the market does something totally unexpected.

This maxim isn’t an excuse for failure. Rather, it should allow you to keep a balanced perspective about the market forces that dictate your trades. You can’t control or account for every move in the market, especially when irrational exuberance or fear take hold. The best you can do is research every position and employ proper risk management strategies. Everything else is outside of your control. And every once in a while, the market will do something so profoundly bizarre that you’ll have nothing left to say.

“Know what you own, and why you own it.”

Peter Lynch cracks our list with this amazing quote that is often overlooked by ambitious traders who can’t wait to open up 10 new positions before they’ve finished their morning coffee. If you don’t know what you’re trading or why, then take a step back because you’re navigating into a world of possible heartbreak and financial loss. When there’s money on the line, you need to do your homework before each and every decision. Once you’ve made a decision, re-evaluate it to determine whether it meets the overarching goal of your portfolio.

The trend is your friend.

Technical traders love this one. When they identify a trend, they trade with it rather than against it – at least until they have a strong reason to believe the trend is breaking down and/or reversing. There are a myriad of technical indicators that can help you identify and confirm a trend as it is forming so that you can assume your position accordingly. Before you enter a position, identify the trend and have a very good reason if you plan to fight the market.

Separate desire from actions.

We all have a reason for entering the market, and almost always that reason is financial. What you intend to do with all the “millions” you make can be a great motivating factor, but it should not dictate your decisions. Mixing desire with actions is akin to letting your emotions control your portfolio. This can be a recipe for disaster. Let your desires motivate you, rather than dictating your decision to long a currency pair or short a major index.

It’s not how much money you make, but how much of it you get to keep.

Before bragging about a great trade, ask yourself if you actually got to cash it out or turn it into an even bigger profit. If the answer is no, what exactly are you bragging about? Becoming a millionaire at 30 is impressive, but if you’re not still one by 40, what’s the point? In finance, it’s not about how much money you make, but how much of it you get to keep.

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