Once there was an athlete named Jensen who was well-trained and strong, but he kept losing in official competitions. Psychologists call this phenomenon the "Jensen Effect," where people perform well in daily life but fail in formal competitions due to poor psychological quality.
This phenomenon is not only present in our daily learning, life, and work but also prevalent in trading, especially in the early stages of a trading career.
Where does the "Jensen Effect" in trading come from?
In the field of trading, the reasons for different traders to experience the Jensen Effect vary, but generally, we can summarize them into the following four points:
1. Poor psychological quality
According to the definition of the Jensen Effect, it is a psychological issue. Therefore, for those with poor psychological quality, they are very prone to the Jensen Effect when trading. For challenging industries, the psychological quality of individuals is very important, and in trading, it is even more critical, almost determining the success or failure of traders.
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Why is that? Because every aspect of trading requires traders to have excellent psychological quality to succeed.
For example, are you decisive enough when building a position? Can you temporarily abandon personal emotions and think rationally when making decisions? When facing losses, will you continue to hold the position because you firmly believe in your analysis? When realizing you made a mistake, do you have the courage to close the position immediately to reduce losses and not affect the next trade? These all involve the psychological quality of traders and are key to their success or failure. Traders with insufficient psychological quality may lose everything if there is a problem in any link.
2. Overemphasis on money
As we all know, the ultimate goal of trading is to make money. However, if traders overemphasize money, they are also prone to the Jensen Effect. Some people may find this contradictory. Since the purpose is to make money, what's wrong with valuing money? Traders with such obsession may need to be cautious.Making money is indeed the ultimate goal of trading, but constantly focusing on this goal does not necessarily lead to achieving it. Overemphasizing money in trading is not a good thing because when you pay too much attention to it, any paper losses or gains can lead to exaggerated emotional fluctuations, resulting in significant tension and stress. This is also why many traders perform well in simulated trading but fail in real trading. In simulated trading, there is no concern about financial gains or losses, so there is no psychological pressure. Once it involves financial gains or losses, the pressure follows.
III. Overemphasizing Trading Results
When traders place too much importance on the results of gains and losses, it is easy to become overly tense in trading. This can be divided into two situations:
One is for those who rely entirely on trading profits to live without a stable source of income. Some even trade with borrowed money, hoping to repay the loan with trading profits. For these traders, they tie the results of their trading to their life or debt. Each trade's gains and losses are very important to them because if they suffer a severe loss, they may lose their source of income or be unable to repay the loan.
The other is to regard trading as their only value. These traders believe that only by making a profit in trading can they prove their worth, and if they fail, they completely deny themselves. By imposing their life value entirely on trading, this extreme view equates trading results with life value, which brings great psychological pressure to traders.
IV. Heavy Position Operation
The heavy position operation mentioned here refers to traders' positions exceeding their own bearing capacity. For example, you can only afford a loss of 10,000 yuan, but due to the heavy position, the maximum single loss may reach 50,000 yuan. When trading under such circumstances, traders must bear tremendous psychological pressure.
Heavy positions beyond one's own bearing capacity are actually driven by greed. These traders are mentally calculating that if the position is heavier, the profit will be more than this. At this time, it is easy to have an accident because the heavy position under greed will inevitably lead to fear, and various fears will cause traders' psychology to undergo a huge distortion: fear of losing money, fear of the profit slipping away, fear of missing the market, and so on.
How to Overcome the "Jensen Effect" in Trading?To overcome the Janssen effect in trading and break through the bottleneck to becoming a mature trader, we must start with the causes. In fact, after understanding the four reasons mentioned above, some smart people already know how to overcome this psychological obstacle. There are many methods, which vary from person to person, but here are four methods for your reference.
1. Value the process as much as the result
The trading result is undoubtedly important to traders, but many people have not realized that the trading result is uncontrollable and uncertain for traders, while the trading process is controllable. When you learn to let go of your expectations for the trading result and focus your energy on controlling the trading process, do what you can do well (formulate a trading plan, execute trading summaries, control the details of opening and closing positions, risk management, etc.), and leave the rest to the market, you have completed a very significant transformation in your trading career.
2. Trade with a light position
As mentioned earlier, one of the reasons traders experience the Janssen effect is the high pressure caused by heavy position trading. So, the best way to solve this problem is naturally to choose light position trading. The combination of heavy positions and market uncertainty is hard for the average trader's psychology not to be affected. To control risks and accumulate profits gradually, you still need to choose light position trading.
3. Establish the correct concept of trading capital
To ensure that your trading is not affected by floating losses and profits, a very important point is to trade with idle money. After all, trading capital belongs to investment assets and inherently carries risks. Therefore, the trader's funds must come from the surplus part of life. Even if you lose all the money in your account, it will not affect your normal life or reduce your quality of life. If you can achieve this, the psychological pressure caused by the floating gains and losses in the account will be very small, or even non-existent. In trading, you should not care too much about the gains and losses of money, but should focus your attention on the trading process. As long as every trading detail can be done perfectly, making money is a natural result.
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