Getting Started in Commodities

Chapter 10

Psychology 101: Winning the Mind Game

Is a winning trade always a good thing? On the face of it, the obvious answer is yes. Yet depending on circumstances, it is not at all uncommon for traders to view a particular trading win in a less than positive light. How can this possibly be so? Consider the following example. Suppose a trader is thinking about buying soybean futures but is nervous about taking the plunge. As the trader watches and tries to muster the courage to enter a long trade, soybeans rally from 550 to 560. As beans touch 565, the trader finally pulls the trigger and buys soybean futures at 565. Beans subsequently rally to a high of 585 before starting to back off. But in this example, the trader is hoping for more, so he holds on. A few weeks later he finally exits the trade at 570 and thus garners a profit of $250 on the trade. But is this trader happy to have made $250? Quite possibly not, for if he is like many people, he will instead be kicking himself for having waited so long to get in and so long to get out and missing out on a much bigger profit. As a result, not only does he come away with a negative thought about a profitable trade, but he also runs the risk of having this experience negatively impact his judgment in the future. The next time he is contemplating a trade, he may be too quick to enter or exit, not wanting to miss a move as he did with the soybean trade.

Is a losing trade always a bad thing? Once again, on the face of it, the obvious ...