There is a saying that most millionaires are made during recessions. This is because while most people can never really identity the top of the market cycle while they are currently in it, most people can identity when they are going through a recession.
It is during trying times such as these that the real geniuses step up their game and enter the stock markets to make their big bucks. While everyone is avoid the markets out of fear, these high level traders enter the market looking to double their net worth.
Most of the time, they are able to navigate such uncertain financial due of their very strong understanding of trading psychology. Here are 5 of the psychological practices top traders stick to religiously to profit during recessions.
1) Adhere Strictly To Your Stop Losses
Given that the markets always have a tendency to go either way during recessions; top traders adhere very strictly to their stop losses. They value capital preservation over high risk trades, knowing that if they are forced out of their trade, they have the majority of their capital to fight another day.
2) Ignore What The Rest Are Doing
Top traders don’t care about what others are doing. They know that if they follow the footsteps of others, they will end up experiencing the same losses as everybody else. That is why they are in the markets during the recession when everyone is out of it in the first place!
Top traders are very focused on their craft and their trades. They do not let news, reports or sentiment cloud their logic. They take full responsibility for each and every single one of their trades and hence, they do not allow others to alter or affect their trade decisions in any way.
3) Be Very Sure Of What You’re Doing
The reason why top trader can trade during such uncertain times and still afford to sleep in peace at night is because they typically have a system which they follow strictly. This system takes all emotions out of their trades and allows them to trade with a fierce certainty in their decisions.
Most traders don’t trade during recession because they aren’t even sure if they really want to be in the marketing during such turbulent times. Even if they take positions in the market, they do so with much fear and uncertainty in their trades. As a result they often exit hastily, even if a profit opportunity is just around the corner.
While it is impossible for amateur traders to follow in the exact footsteps of top traders by creating their own trading system, they can still maximize their returns by adopting or copying the trading system that these successful traders are already using.
4) Never Trade With What You Cannot Afford To Lose
Suffering a huge loss can be a big psychological hit that very few people can recover very quickly from. This is why good traders never put themselves in such vulnerable positions via the use of diversification and stop losses.
However, top traders bring this practice one step further. They enter the trade with risk management tools already in place. One option trader I know has a policy of not trading with an amount he cannot afford to lose 50%. Another Forex trader I know has a risk tolerance of 1% per trade.
While different traders have their different practices, the common thing I noticed between all successful traders is that they all have strict risk management practice in place.
5) Predetermine A Profit Taking Level And Sticking To It
Unfortunately the biggest issue for traders is the not problem of making money, but the difficulty in holding on to it. When their traders are already making money, greed often come into play and convinces them to keep the trade open longer than they should have.
As a result, whatever profit they initially eventually got wiped out and they ended up closing the trade at a loss.
A successful trader once shared with me that a trader only has one job – and that job is to take profit.
Once again, top traders know that closing a trade can be emotionally taxing when it is already making money. Hence in their system, they often predetermine a profit taking level which they will stick to regardless of the trade performance.
With such a practice, they get to keep the majority their profits… unlike the rest of the traders.
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