Your Head is Fine But Your Strategy Stinks

One of our very bright new traders asked to chat about trade psychology. He feared his needed help and wanted to seek my advice on a trading psychology coach.

Many of our traders work with psychology coaches. The results are often very positive.

I asked the trader to stop by my office for a chat to see if his issues were one of psychology or strategy. It turned out they were issues of strategy.

Bella: Why do you think your issues are psychological?

Trader: I have trouble holding my conviction trades. I tell myself to hold them no matter what and then I end up cutting them.

Bella: You will not sell your positions no matter what you see in the market? That is not a very good trading system. For conviction trades you should always have Reasons2Sell, even if they are few. I wonder if your issue is that you have not developed your strategy of Reasons2Sell for your Conviction Trades.

Trader: Yeah that makes sense.

We talked some more. I sent him off with instructions to start developing Reasons2Sell for his Conviction Trades. I recommended he re-read The PlayBook where Reasons2Sell are discussed in detail and check the blog for our posts on this technique.

If you cut trades without a fully developed Reasons2Sell strategy you might very well be acting rationally mid-trade. There might very well be a good reason for you to exit that you are seeing in the market. And then at a later date that stock may trade higher. But this is not an issue of weak psychology. This is you not crafting a trade plan for Conviction Trades to guide your decision-making while in your best trades.

Related Posts:


Webinar: Reasons2Sell

Mike Bellafiore is the Co-Founder of SMB Capital and SMBU, which provides trading education in stocks, options, forex and futures. Bella is the author of One Good Trade and The PlayBook.

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