Things are really looking up for you until you quickly give back all of the gains you just made and in fact no have less in your trading account than you did when you first started. You have no idea what has just happened and how you could go from being on top of the world to being in the dumps so quickly, but actually the reason is pretty clear. You got overconfident.
Overconfidence is one of the most dangerous emotions when it comes to trading because it causes traders to abandon logic because they feel like they can’t lose. If left unchecked this emotion can do serious damage to trading accounts and has been responsible for the ending of many trading careers.
This overconfidence rears its ugly had after traders have a good streak of winning traders and they start to be overcome by feelings of euphoria that causes them to take trades that they normally wouldn’t because they are enamored with their own perceived abilities.
This is one of the classic traps of trading that has led to downfall of many traders. In order to avoid this you need to remain humble at all times and respect the power of the markets. There is no way you can ever accurately predict the market all we can do as traders is stack the odds as high in our favor as possible before taking a trade.
Never let a string of good trades go to your head, and if you do feel those feelings of unwarranted confidence coming on then the best thing you can do is stop trading and only come back after you are thinking clearly. I know that is easier said than done but it is this discipline to resist the alluring pull of their emotions that separate the great traders from everyone else.
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