Psychologists tell us that we humans are hard wired to be optimistic – seems like it was desirable to be that way in the early years in order to better cope with the hardships of life. Therefore the tendency to be optimistic is a part of human nature. Perhaps that is still a good thing for many – but for a short term trader it can be a problem.

Sort term trading involves assessment of probabilities – and entering a trade only when the probability of success is greater than 50%. Now that is easy to say – and pretty easy to understand. But it is not so easy to accomplish – each and every time a trade is selected.

More often than not, when I have a losing trade – especially when I lose more than usual – it is because I did not overcome my human nature. Post trade analysis of such losing trades usually indicates that I did not assess the probabilities very well. Often, the probability was completely absent – only the possibility existed. How can a trader with my knowledge and experience make such a stupid mistake? It is really easy, all I have to do is to let my human nature take hold, and viola – a possibility suddenly becomes a probability!

If action is taken on a possibility rather than a probability I am already off on the wrong foot – and human nature is still my enemy because I will be optimistic about my possibility and not react nearly as soon as I should when things start going wrong. That is why we have to develop a methodology for short term trading and follow it relentlessly. Each step in our trade evaluation process must be done for every single trade analysis – or we risk mistaking a possibility for a probability.

The difference between trading on possibilities – versus trading on probabilities – can be the difference between failure and success. So don’t let Mother Nature get you into a trade you should have never taken in the first place – use a system and follow it every precisely time you construct a trade – it will make you a better trader. And if you have a really good system, like TBL, of course – it is easy to follow it with confidence.

 

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