Are You Trading for Comfort?

Thursday, June 15 Leave a Comment

One of the most basic of human instincts is to avoid pain and to seek comfort.  This makes sense.  No one wants to experience pain; we prefer pleasure and comfort.  In trading, however, pursuing what’s comfortable is frequently not a good idea.
Trading for Comfort
There are many examples of trading decisions that are made for comfort but turn out to be the incorrect play.  For example, a trader experiences three losses in a row and another trade sets up with criteria similar to the last losing trade.  Many traders will avoid taking the trade, choosing comfort over the potential pain of another loss.  The right thing to do, of course, is to take the trade if it meets your criteria.  The last trade has no influence on the current trade, though the discomfort we feel about another loss often causes an incorrect decision.
Do You Choose Certainty or Risk?
Psychologists understand that the pain-comfort dynamic has great influence when it comes to trading losses and profits.  Take this classic experiment and see how this dynamic affects decision-making:
You have a choice.  You can choose either:

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