Quiz for traders

The Art of War, written by Sun Tzu, states that victory in war (as in trading) requires knowledge of the enemy (the market) and also knowledge of oneself. 

Today, I came across this quiz for traders. It requires a TRUE or FALSE answer. Score one point for every answer that is TRUE for you.  

1. I stick to my stop-loss rules regardless of how I feel when market approaches my stop loss.

2. I only risk a small percentage of my capital on any single trade.

3. Before every trade I do, I have prepared my exit strategy; I know my stop loss level, and I also know where is my profit target.

4. I keep records of my past trades, and periodically review this trade record for feedback on what went right, and also what went wrong.

5. Defining my stop loss is an intergral part of my planning process for ALL my trade entries.

What score did you get? If your score is 0, 1 or 2, you are in the lower quartile, which means that less than 25% respondents who took this quiz obtained a score as low as yours. The psychological analysis suggests that individuals who score in this range are stressed out while trading, experience unpleasant emotions, lack discipline, and have low self-esteem. In contrast, if your score is 5, you are in the upper quartile, which means that 75% of respondents who took this test obtained a lower score than yours. Individuals  in this range tend to approach trading in a carefree manner, show self-control, and prefer a logical well-planned approach to trading.

How well do you manage risk? Managing risk not only protects your money and capital, but it also helps you control your emotions.  Traders who manage risk well are less stressed out and tend to experience positive emotions. These findings suggest that you will feel calmer if you minimize risk. If you are not doing so now, it’s easy to start taking some basic precautions. For example, develop a well-formulated trading plan before you execute a trade. Determine how much risk you are taking up front and decide if you want to actually take that risk. When used properly, by accounting for price fluctuation, protective stops are another effective way to minimize risk. Risking only a small portion of your account on a single trade is also useful. If you truly feel that risk is at a minimum and bearable, you will feel safe and relaxed. And when you feel relaxed, you will be able to trade more freely, creatively, and profitably.

May you all Trade Well, and Trade Profitably