All Entries in the "Trading Psychology" Category
Goal Number 1
December 14, 2005 at 8:39 am
New traders want to know how much they can make. If they have X dollars in their account, how much stock can they buy and how soon can they get rich?
Veteran traders know better. They became veterans by surviving. They endured the occasional painful losses, yes, but even more so, they were able to withstand the times when trading just has very little to offer. Veterans are willing to wait out the slow trading times without putting it all on the line to make a quick buck or add some excitement. A veteran trader will tell you that goal number 1 in trading isn’t about how much you can make. Goal number 1 is all about protecting your capital and staying in the game.
Trading capital includes the cash you have to trade with…….your seed money…..your bankroll. It’s what you absolutely must have to stay in the game, and only then can you reach toward goal number 2 – making money. Protecting the cash in your account will enable you to seize opportunities when they arrive so that you may profit.
I think there’s a certain amount of emotional trading capital each trader begins with as well. To me, it’s as important as the cash in my account, because I could always borrow additional funds to trade with if it came down to it. I take as many precautions to protect my emotional capital as I do to protect my cash. If I lose my confidence trading, then it won’t matter if I have cash left to trade with! If I get on a losing streak or overtrade when the market is choppy, then I end up confused and clueless what to do next. That’s no way to make money trading! Protect your emotional capital too – get smaller when you’re trading poorly, or step away entirely when things aren’t clear.
Always keep these two goals in the proper order and don’t ever forget your primary objective every day: survival! Protect your capital and you’ll stay in the game plenty long enough to reach goal number 2.
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
Cinderella Man
December 10, 2005 at 12:29 am
I love the movie pass from Blockbuster…….if you don’t like it, take it back and get another one!
We just watched Cinderella Man tonight, and I highly recommend it. I noticed the running time on it is a bit long, but that was before I pushed play. Good stuff!
It’s the weekend, so you might have to catch it next week if everything is checked out, but do yourself a favor and learn a little history while you are entertained!
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
Trading Without Emotion
December 7, 2005 at 2:56 pm
Making and losing money in the blink of an eye while trading evokes all sorts of emotions. It’s so easy to get excited when a trade develops exactly like your plan. It’s equally easy to get frustrated and mad when a stock goes the wrong way and you know another trader is collecting on your mistake (that lucky chump!).
But when was the last time your emotions helped you in a trade? Has that positive excitement ever been costly to you, causing you to either book profits too early or stay in too long (feeling like it was easy)? Has your anger ever led you to put on grudge-trades, trying to “make back” your money quickly after a loss? It’s obvious to see that emotions are detrimental to your wealth!
I took up golf seriously when I was 13. My dad had always been a scratch player, so I had a great teacher for all aspects of the game. After I had been practicing and playing every day for several months, an important day arrived. He and I were playing golf one afternoon and on the 9th green, I had my first putt ever to break 40. It was about 2 ½ feet long and I should have been able to make it in my sleep. BUT, I was focused on my score rather than the process. I missed the putt, shot 40, and was mad the rest of the day. I wondered how long I’d have to wait for another chance at a meaningful putt like that. My Dad made some comments which helped me then and continue to help me now. He said I rushed my effort and was clearly thinking about score (results) rather than making the putt (the process). He suggested I implement a pre-shot routine, which is a mental and physical checklist to go through prior to each shot. Doing so would help me to focus on the process rather than the result. I broke 40 a few days later, excited about this new discovery.
Trading with a systematic approach can have the same positive effects on your profitability that my pre-shot routine gave me in golf. Even if you take discretionary trades, going through a routine and focusing on the process will let you execute your trading plan much better than watching your account balance fluctuate and having your emotions flutter just as often. This might mean that each evening you do some research or screen for chart patterns. It might mean you read a stock newsletter, scan the news, or set up conditional alerts as a safety net to your trading. Maybe it just means you go through the same routine each morning, adding some structure to your day and leveling out your emotions. Whatever it may mean for you, I highly suggest implementing some kind of trading routine to help combat the emotions that every one of us faces with trading. You’ll have time to do all of your celebrating later!
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
