There are literally dozens of books and articles written on the subject of The Psychology of Trading and they all pretty much agree that most Traders follow the same emotional paths. So, it is important that you take a few moments and perform a quick mental analysis on yourself.
What is your Trading Goal? By Trading Goal we don’t mean money, we mean how often will you spend time on your watch list and how many successful trades do you plan on before trading real money? What are your plans for profits? What is your attitude toward losses? How well do you know your EOD Trading Strategy? What is your money management plan?
Once you have set your reasonable goals, it is important to access trading realities. When trading the Market, you need to accept the fact that you will have wins AND losses. This is why we want you to trade virtually in the beginning, not only to learn the trading platform and the EOD System but to adjust emotionally as well. There is a certain amount of performance anxiety associated with trading. The anxiety stems from wanting to do well and avoid losses. To relieve a measure of this anxiety, learn your End of Day system well. Memorize your checklists and be consistent in your trading. By consistent, we mean in the number of shares you are trading whether it is Longs, Shorts, Puts or Calls. Do not focus on the dollar amounts. Focusing on the trading mechanics and not the money takes emotional decisions out of the picture. You want to stay objective.
Throughout our lives we have been taught to succeed. To some extent our financial worth is a measure of our success. To lose any of that worth means failure or less success. This attitude or mental state contributes heavily to the anxiety of losing and in some cases, prevents a trader from moving from virtual trading to actual trading. It is FEAR. To reduce this fear, it is important to one: understand that there will be losses and two, do not set monetary goals. If you know your trading strategy well, then you have reduced your risk in trading. Losses are going to happen that are out of your control, it is not your fault, it was unforeseen and therefore you cannot blame yourself. You have accepted the fact that you will have wins and losses and you have set your goal to have positive trades. Set reasonable goals like, 8 out of 10 trades will be positive. Focus on the quality of your trades not on the dollar amounts.
Mentally rehearse for wins and losses during your non-trading hours. Think of it like a survival plan. Know what you are going to do with the profits you make (for some, making money is just as stressful as losing money) on positive trades and what steps you will take when a trade starts to turn south. Having a strong survival plan (and not counting dollars) will reduce anxiety because you know exactly what you will do in each situation without hesitation. Emotional stressing over money can create reckless thinking and any survival plans go right out the window.
The bliss of trading is having full autonomy and self-direction. It is freedom and empowerment. It can also be addictive. Be mindful that there will be times when there is nothing to trade. Be careful not to trade a stock just for the sake of trading. Take that time to review your stock lessons, focus on your day job or relax and indulge in a hobby. Never feel pressured to trade. Overtrading leads to errors, costly mistakes and undue stress. Overtrading often can lead to a losing slump which only gets worse over time.
Pep talks to yourself are fine, keep them positive and keep them out of your head while you are trading. The only things going through your mind when you are trading is your entry strategy, your red zone strategy and your exit strategy. Turn the money meter off, do not focus on the dollars, focus on the indicators. Have your checklists handy to be sure you are proceeding correctly. As your successes multiply gradually ramp up the number of shares or contracts you Buy or Short. Remember, the number you started with was a number you picked because it was in your comfort zone. Well now you are ramping up because you have traded smartly and are profitable, so don’t get GREEDY and bet the farm. The fact that you are buying or shorting more shares will impact your profits which is a great thing but if the stock tanks, you could lose more depending on your TSL and red zone alerts. This can have a profound effect on the psyche, which is why a gradual increase in shares is easier for the mind to accept and feel comfortable with. Remember, do not focus on the dollars, stay focused on the strategy. By keeping money out of the picture, you are able to stay objective.
Most of you chose to learn Stock and Option Trading for your own gratification and to earn a few fun coupons along the way. Many of you took this class so you can pass the knowledge to family members and help them learn another stream of income that is not dependent on employment, so focus on the quality of your trading not the quantity. You alone do not influence the volatility of a stock. That is out of your control. Realizing that, you know you will have wins and you will have losses. Through the years our experience and the raport we share with our students, has demonstrated to us time and time again that the quickest way to get you where you want to be in your trading is to focus on the EOD Strategies you have learned (like the back of your hand) and turn the money meter off. By implementing these mindsets and strategies we reduce the stress and anxieties associated with trading and avoid the chance of sabotaging our own successes.
In short, turn the money meter off!! : )
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