Most beginners erroneously assume that because they are engaged in the inherently risky activity of trading that they are accepting the risk. This assumption cannot be further from the truth. In order to accept risk you must first understand risk the proper way and this is something most beginners fail to do.
Accepting risk means accepting the consequences of your trades without emotional discomfort or fear. This requires that you learn how to think about your trading and your relationship with the markets in such a way that the possibility of being wrong, missing out, losing, or leaving money on the table won’t cause your mental defense mechanisms to kick in, thereby taking you out of the mental state where you experience trading opportunities by losing your objectivity.
When a trader truly accepts risk the trader opens up the possibilities to take advantage of market opportunities and avoids self imposed limitations or low expectations from the market. Once you learn to create a state of mind that is not affected by market’s behavior, the struggle will cease to exist. When the internal struggle ends, you can take full advantage of all of your skills, analytical or otherwise to eventually realize your full potential as a trader.
So the first skill that beginners must focus on is the ability to fully accept the responsibility of loss as part of trading. I know one trader who starts to get worried when he gets too many winners in a row because it’s out of character for his strategy. Another trader looks forward to losers because he knows that as soon as the losing streak is over a winning streak will begin. There is no reaction regardless if each trade is a loser or a winner and it’s just part of the game. As a matter of fact you wouldn’t know when each trader is having a winning run or terrible losing run, their attitude doesn’t change one bit because they fully accepted the risk of loss as a natural part of the game.
The first step to true acceptance of risk is the fundamental belief that anything can happen when trading commodity and commodities contracts, this creates a foundation for building every other belief and attitude that is necessary to be consistently successful, and this is how traders begin to think in terms of probabilities.
You must learn and completely accept the fact that you don’t know what will happen next in commodities when trading, and in fact don’t need to know, in order to be consistently profitable. Since you don’t have to know the outcome of each trade you do not place any significance, emotional or otherwise, on each individual trade. This is very important for many beginners. Commodity brokers see this daily when traders put in trades. When I first out for example, I believed that how a trade performed was a reflection of my intelligence and my ability to pick winners and losers, so when I was winning I thought I was smart and when I was losing I thought I was stupid.
After several years I look back and realize that it was silly to think that way and now I can be right or wrong many times in a row without ever imagining it has something to do with my intelligence. This is how thinking in probabilities works. Active Futures is the leader in commodities.