John Piper’s Tips for Overcoming the Psychological Challenges of Trading and Achieving Superior Returns
He believes that a novice trader must learn to cut his losses, and that nothing really matters at this stage. But once this rule is ingrained, all that remains is to generate profits.
“But if you try to make a profit at the cut-loss stage, you will have a lot of problems,” he writes in his book “The way of commerce‘.
Another difficulty, according to Piper, is that many traders break the rules and win, but this can be disastrous because the market is bound to surprise you if you follow the wrong rules.
“Trading has its own logic. If you let losses pile up, the logic is that you will be wiped out. On many different trades, the market will exploit every weakness of the trader or their system. Statistically, a few “bad” ones traders will do well for a while, but not in the long term,” he writes.
Who is John Piper?
John Piper is the founder and editor-in-chief of The Technical Tradera leading UK newsletter for traders.
Piper writes for several trading websites and speaks at trading conferences and seminars in Europe and the United States, with a particular focus on the psychological challenges of successful trading. In his book, he offered some tips for investors to face and overcome the psychological challenges of trading. trade for solid returns. Let’s look at these tips-
1. Reduce the size of the post to the point where you are comfortable
Piper says many traders put themselves under undue pressure and, in doing so, they are prone to making bad decisions and losing money. So he suggests reducing position sizes and making more money.
2. Consider using options strategies – don’t limit your options!
Piper says options have many benefits and play a vital role in a trading strategy.
3. Find a business mentor
According to Piper, trading is a difficult activity, partly because it is a zero-sum game.
“It’s a negative sum game because every time you enter the game you pay a commission, not to mention all the other expenses involved, price feeds, computers, software, etc. With futures, the Amount won by each winner is paid by all losers, but all participants pay commissions and other fees. So overall it’s a negative pot. It’s not surprising that so many people lose “, he said.
He says if investors need help trading, they should find someone who has experience.
“Ideally a local trader – many are willing to help as trading is a fairly dry business with little meaningful human contact. Otherwise you may need to find a professional willing to help, but they may well be expected to charge a fee. I do it myself, but the best thing to do is try to find someone who is close to you,” Piper wrote.
4. Use stops that make sense
Piper says that not all traders use stops, and by not using stops, everything becomes simpler because investors are eliminated fairly quickly.
“If you’re using an approach that uses stops, try to make sure your stops have some importance. Otherwise, you tend to waste money,” he says.
5. Understand the logic of your business approach
Piper says any market approach carries risks. As a trader, you have to control risk, just like a tightrope walker learns to live with an imbalance.
“Understand the logic of your approach and the risks you are taking because that risk will trickle down. In a sense, the market is a generator of random sequences, especially if you follow a precise algorithm. If you or your approach has a weakness, the market will find it in one of these random sequences,” he says.
6. Let the profits run – wait for the second marshmallow!
Piper argues that unless investors let their profits flow, they will never cover their losses, much less emerge victorious.
“You also need to cut your losses. Most traders learn to cut their losses fairly easily, but have difficulty generating profits. This is not surprising. Cutting losses is an active function that requires careful monitoring of this is happening – it requires action. Making a profit, on the other hand, requires inaction, and doing nothing can be difficult. In modern society, we are used to quick gratification. We want our gifts, and we want them now. The same goes for trading profits: once you see them, you want them – but you can’t have them if you want to let the profits run,” he says.
7. Be selective
According to Piper, there are many keys to success, but he believes that being selective is the one that separates those who make a lot of money from those who just get by.
8. Don’t predict
Piper says market action is not predictable and a trader does not predict action – he takes calculated risks. He risks a little to gain a lot.
9. Don’t panic
Piper says investors should learn not to panic, as it is an essential part of being successful as an investor.
“Panic is the mother of losses. This includes not putting yourself under excessive pressure. The more relaxed you are, the less likely you are to panic,” he suggests.
10. Be humble – big egos are very expensive to manage!
Piper says that a person full of themselves has no room for anything else: they don’t listen or learn.
“A trader who is not humble risks not listening to the market and being destroyed. I think we have all heard stories of macho traders who prey on the market and turn themselves into minced meat. I believe that humility is essential to business success.” he adds.
(This article is based on John Piper’s book, “The Way to Trade.”)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
