When I started my stock trading profession, I literally put my heart into it. As a young trader struggling to develop the necessary trading skills, emotions ruled most of my trades. In a short span of time, I found out that success in the stock market is not achieved with a high emotional state. It’s the mental state of a trader that wins trades.
The Philippine stock market is a fertile ground to get rich but it’s also unforgiving when it comes to losses. Thus, I took steps to improve my trading psychology which I believe dictated my success. By controlling emotions and focusing on sharpening my mental faculties, I slew the market big time.
Winning became a habit. To this day, I’m totally wired to every trade. Of course, it’s still part of human nature to express happy feelings after a profitable trade. Hindi naman natin maiiwasan maging emotional talaga minsan kapag natatalo or nanalo. However, during the trade, it’s always my mind that’s working never my heart.
1. Motivate yourself
One of the best attributes of a good trader is self-motivation. Prior to a trading session, it would help to prepare for what lies ahead. Engage in pep talks or give yourself a reward if you achieve a certain goal for the month or year.
Set aside your personal feelings or moods. Summon your intellect, analytical prowess, and mental alertness. You’ll need them to be at the top of your game.
Nothing should matter in the next three hours or more except to optimize gains and minimize losses. After the trading, do a self-assessment of your performance. That should prepare you for the next trading day.
2. Get organized
Most traders look forward to the next trade. That’s a clever attitude to take. I am strict with myself when it comes to organizing my tasks. I always think about my future trades and I plan in my mind.
Never be short-sighted. Some traders tend to agonize over the recent losses that they lose focus of the succeeding trades. If you fall into that trap, performance dips and you become ineffective.
Hence clear your mind of the temporary setback and stick to the process. What is important is to adjust. The quicker you can regain composure the better. I sometimes lose on good trades but remain focused on the process and my rules.
3. Lose small, win big
It is natural for traders to be deeply affected whenever losses hit them. That is part of the game. However, there’s a tendency to overreact especially when an anticipated gain turns into unexpected losses.
Keep in mind that nothing is certain in the stock market. A great deal involves probabilities. As a trader, it is assumed you know this market characteristic.
Anyhow, a negative trading psychology emerges when the impulse is to recover from a loss. A trader would proceed to the next trade recklessly. All guards are down, emotions take precedence, and objectivity is lost.
Revenge trading is never worth it. I’d rather lose some and win more. The key to reducing losses is to always make well-informed and timely decisions.
4. Don’t let fear consume you
There are only two things that can happen when you trade in the stock market. You either win or lose money. Therefore, it would be a sound advice if you imagine yourself winning as well as losing.
The fear factor can sometimes consume even the best trader. When you lose a trade, you think it might be the start of a losing streak. Fear and indecision set in.
The best way to conquer the fear is to contain the risk by limiting the amount of trade. It would be a costly mistake to pile up on losses instead of modifying your trades. An intelligent trader knows when to pull the stops when dealing with real money.
5. Don’t let greed define you
The opposite of fear in stock trading is greed. Many traders suffer opportunity losses, if not a financial dislocation because greed took the better of them. Sometimes aggressive position and targets by traders’ yield losses instead of gains. The reason is greed.
Traders are tempted every time when an opportunity to double their profits arise. For instance, a trader doubles down on a winning trade in hoping it can move further up and yield a greater profit by doubling his position and risking his profits.
While the analysis seems justified, the trader is also increasing the potential losses. This is just an example how greed creeps into one’s trading psychology.
Winning traders have attained the level of trading maturity, including a near-perfect trading psychology. They’re not easily swayed by emotions or disturbed by moods during trading.
I have survived my baptism of fire and prospered in the stock market because I worked consistently to improve my trading psychology. I did what a stock trader is supposed to do. I took time to identify my trading psychology faults and corrected them. I am way past committing mental errors and no longer consumed by fear or greed. My record speaks for itself.
Once I have integrated my trading psychology with my strong knowledge and foundation of the stock market, my trading decisions almost always translated into profits. When you’re into stock trading, it pays to improve your trading psychology. We’re in the business of building wealth so let’s not waste our precious time losing money.