Common sense tells us that prudent decision-makers are realists, rather than people who deceive themselves into believing that false perceptions are actually true. The markets are one place where the seasoned trader takes advantage of the masses that tend to fool themselves into thinking that they can haphazardly buy and sell stocks and make huge profits. The seasoned trader knows, however, that enduring success eludes many, and that the emotions of fear, greed, and regret compel the masses to buy and sell at inopportune moments.


The false hopes and dreams of the masses are often shattered. Indeed, when it comes to trading, cultivating an objective, realistic approach can make the difference between becoming a winning trader or joining the masses that give back any profits they have made. That said, the reality, in the end, is subjective. What is the true reality? Realists are often pessimists. When you truly examine the amount of control you have in the world, and in the markets, it can seem hopeless. In the trading world, it is vital to be falsely optimistic and realistically pessimistic at the same time.

Research studies have demonstrated that pessimists are realists. They are accurate when determining just how much control they have over life outcomes. People who are more psychologically healthy tend to be falsely optimistic. They tend to believe they have more control than they actually do. They believe that if they try hard enough, they can make all their dreams come true. So which is better, a naïve optimistic or a realistic pessimist? A realistic pessimist may judge the world accurately but will tend to give up in the face of adversity.

And trading is replete with setbacks. To become a winning trader you must learn to face setback after setback. A pessimist can never surmount such obstacles. An optimist may falsely believe that he or she can do anything, but at least, an optimist will keep trying. Many naïve optimists may never achieve financial success, but at least they will keep at it. There’s no way you can achieve success if you don’t even try. In the end, optimism may not be realistic, but it is a necessity.

Ideally, winning traders are optimistic and pessimistic at the same time. They are pessimistic in that they know that events are likely to go against them. They take precautions, such as limiting risk and not getting their hopes up. They realize that on any given day, market conditions may not be optimal and that they may have to stand aside until things improve. On the other hand, they are optimists. They know that if they keep at it, they will eventually come out of it successfully in the long run. They realize that it is a matter of endurance and that they can endure if they merely feel that all is hopeless and impossible.

How can two opposing views be held simultaneously? Don’t think in extremes. The world is neither black nor white, but different shades of grey. You can hold both optimistic and pessimistic beliefs at the same time. Seemingly contradictory beliefs can be true. Pessimism keeps you grounded in the harsh realities of trading, while optimism compels you to keep going even when all hope is lost. The more you can switch back and forth between these two outlooks, the more success you’ll experience as a trader.

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