Welcome to the Stock Market Profits Blueprint Part 8 – the Psychology Pillar.
What most people neglect to work on are the psychological aspects of trading. This is why I do not believe using Stock Market simulation games provides a realistic indication of future performance.
When real money is on the line, it is a completely difference sport.
You will watch each tick up and down of the market. You will constantly doubt if you did the right thing in the trade or in your analysis. When the trade goes against you you will feel negative emotions, should I sell, should I hold and wait for a bounce back, should I buy more to average down?
Mastering your mind set is important and can greatly assist you while you are “in trade”.
Learn to manage your emotions in a practical way. There are many practical and personal lessons we can get from other traders.
Being the Ruler of you.
Try to setup and review your “in trade rules” to be as emotion free as possible.
For example. If you thoroughly establish ground rules for your trades before you make them, then if you stick to your rules this should help remove some of the emotion inherent with trading your own money.
In Trade Rules take the shape of:
- What criteria should be met before I purchase the stock?
- How much I will invest?
- When the stock price drops to this level I will do what?
- When the stock price rises to this level I will do what?
- I will exit the trade when which criteria are met?
This is a notoriously difficult area of trading to improve. Who can honestly say they are in complete control of their emotions. Not me for sure.
Recommended Reading: Market Wizards: Jack D. Schwager; The New Market Wizards: Jack D. Schwager; Stock Market Wizards: Jack D. Schwager