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Unknown Market Wizards

Richard Bargh: The Importance Of Mindset

A repeated lesson that comes up in all the interviews is one should find a method that fits his/her personality. In his early trading years, Richard Bargh tried to work through technicals even though he was naturally more inclined to fundamentals. He found that virtually all of his profits were coming from his fundamental trades. 

 

Finally, he switched his focus to his preferred method of fundamental analysis and his trading improved dramatically. Later, he also found a way to integrate technical analysis as an addition to fundamental analysis.


 
Richard believes that a calm and peaceful mindset is vital to successful trading. When he doesn’t have the right mindset, he stops trading and takes a break because such losses will generate losses of even higher magnitude.

 

In his earlier trading years, Richard took uncomfortably large positions to trade. That suspicion of taking trades caused him to miss many excellent trading opportunities. If his position size was more in line with his comfort zone, he would have profited from many of these trades. The lesson is don’t trade so large that fear overpowers your trading.

 

When uncomfortable about trading, one should try to identify that source of discomfort and then make amendments to eliminate it. Bargh’s discomfort in giving back large open profits on trend trades spurred him to change his exit methods.

 

Instead of using trailing stops to exit, he adopted a more price-sensitive approach. This modification improved his overall performance.

 

Impulsive trades are quite often triggered by impatience and Bargh strongly instructs to guard against such temptations. The market rewards patience and trades borne of impatience are usually destructive.


Market opportunities are irregular because of which the goal of consistent earning may not be realistic. If you try to force consistent profitability, you will be prone to take suboptimal trades, which will often end up reducing your overall profitability.

 

If a trade has not turned out as expected, cut losses immediately. Using stops on every trade is one way to control losses. But if a trade isn’t showing a profit in a reasonable period, as specified by the method, one should not wait for the stop to be hit. 

 

A trader does not have to exit a profitable trade all at once. Even if a trade reaches the target, a small portion of the position may be kept to get some additional profit if the market keeps moving in the same direction. Richard Bargh routinely maintains 5%–10% of a position that he liquidates because it has met his target. He knows that maintaining such small positions increases his overall profits without significantly increasing risk.

 

An important lesson he shares is that the damage from a bad trade often extends beyond the loss on the trade itself. Such trades shake up a trader’s confidence and lead to miss out on winning trades. This missed profit can often exceed the loss on the original trade.

 

Traders need to differentiate between trade outcomes and trade decisions.

 

Sometimes, a good decision may have a poor outcome, and a poor decision may have a positive outcome. 

 

Many traders mistakenly analyze their trading based entirely on outcomes, whereas meaningful evaluation should be based on whether trading decisions were consistent. Winning trades can be bad trades if they violate trading and risk control rules. Similarly, losing trades can be good trades if it follows the efficient process in generating profits with logical risk.

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Units 4/13