Hey Guys and Gals,
There are many factors that make trading a unique (and tough) job.
But if I had to pick the biggest one out – your performance depends entirely on your mood and psychological state.
You may have the greatest of setups right in front of your eyes – if mentally you’re not up for the job, you won’t be able to profit off of it. Worse yet, you may very easily lose.
Today, I want to talk about a few psychological issues that I see many traders face and tell you how you can eliminate them.
Think Long-Term, Strive for Consistency
Trading is so tough for a simple reason: every trade decision may put you on the verge of extreme fear or greed – some of the strongest emotions to begin with.
With so many things moving so fast, so far, and all at the same time, it is very easy to get caught up in the moment and forget what your true objectives are.
One of the gravest mistakes I see beginning traders make is trying to nail that “one big trade”, and hit the one big winner.
This happens all too often with those aiming to grow their accounts and usually leads to the exact opposite – a quick demise.
I get it, you see one of those insane movers… GME, AMC, SPRT… Shares doubling and tripling, sometimes in a matter of hours…
“If only I was in that” – we’ve all had this thought looking at another one of those crazy names.
And this is exactly the point when things usually go south – you become greedy and your mind grows irrational.
You start to:
- Oversize
- Get in too early, fearing missing out
- Have inadequate stops & unfavorably skewed risk-reward
- Bag hold big positions against you, because you’re in too deep
I have yet to see one trade that succeeded using the above techniques.
The solution is simple – aim for the long-term.
Your goal is to make the best trading decisions possible, and to do so with a consistent approach.
Don’t become obsessed with huge winners – instead, focus on consistency.
You’ll be surprised how quickly small numbers may add up.
Don’t “Marry a Stock”
Which is a nicer way of saying “don’t be a bagholder.”
Look, trading is called trading for a reason – we’re no investors.
It’s not our job to develop an investment thesis and faith in a company and hold it through any downturn and market cycle.
As short-term traders, we thrive on short-term moves.
Your goal is to learn the best setups for these and take advantage of the best opportunities when they arise.
If a trade doesn’t work – you must cut it and move on to the next one.
You’ll thank me later.
Avoid Bias
I think we’ve all been in situations when we think “this stock has to go up/down.”
Next thing you know, this idea takes over your mind, and all the trading becomes purely “why is this thing not going where I want it to go!”
Well, the answer is simple – why should it?
As traders, we have to react to what we see, now what we wish to see!
You cannot have a bias about what a stock will do next.
In the market, there’s only one thing I know for sure – I don’t know what it’s going to do next.
And that’s how you have to approach every trade – you don’t know what it’s going to do next.
A stock is a clean slate – our subjective opinion on where it’s headed should not impact our intraday trading decisions.
At Times You Will Lose, Get Over it
Last, but not least… Losing sucks!
I don’t think I have to tell you why!
There’s no positive way to spin this – it sucks, plain and simple, and it always will!
If you’re serious about making it as a trader, you just have to get over it.
You will lose – it’s not going to be a smooth ride.
There will be bad trades, bad days, and likely even really bad months.
This is just how this job works.
What you can’t do is allow a loser to affect your next trading decision.
Cut the loss, walk away if you have to. But start the next trade fresh, rational and smart.
The best way to think of this is as a “cost of doing business.”
Losers are traders’ cost of goods sold, rent, and employee salaries – they cut a lot into your bottom line, but you can’t do without them.
Don’t aim for perfect – be consistent and you’ll see great things happen.
