Like a moth to a flame, trading emotion and psychology gets the best of us in the beginning. The great news, it doesn’t have to stay that way! One of the first things you need to realize, when getting into trading, is your past behaviors will influence/dictate your future results. What I mean is if you’re not disciplined, not motivated, not resourceful, not structured, not humble, a river-boat-gambler then you will probably be all those things as a trader. If you’re motivated, humble, disciplined, reserved, calculated, then you will have those qualities as a trader too. People always ask about psychology and emotion but very few take the time to evaluate themselves. Look yourself in the mirror, know which of these 2 scenarios you are, then build upon it. If you’re not disciplined, a gambler then you need to work on creating structure, trading with smaller size, develop a trading strategy, etc. Understand your strengths and weaknesses before trying to understand what the rest of the market is thinking.
Warren Buffett once said, “It’s wise to be fearful when others are greedy and greedy when others are fearful.” Part of trading Psychology is understanding what other traders/funds/markets are thinking in the moment, in the trade, throughout the week, month, years, etc. In trading you have to have and edge. Know your edge otherwise you’re the sheep. A saying that goes around trading is “Sheep/Hogs get slaughtered, pigs get feed”. No doubt in the beginning you will be sheep, but that’s because you don’t know any better. Don’t let this discourage you, let it motivate you, continue to learn until you know you have an edge. Most great traders understand what they are great at and what they struggle with. Those traders also have a couple setups they play all the time as they have mastered them. For some it’s swing trading, others short selling, some play daily momentum. There is no 1 way to trade and don’t let anyone else try to convince you of that. The great thing about trading is there is thousands of ways to make it in the this game, you just have to find what works best for you. Don’t try to be a “jack of all trades”, just be a master of 1…..or 2.
There are things you can do in the beginning to help yourself that most people don’t teach or talk about in my opinion. When I first got into trading I was taught to trade low float, low priced stocks on a 1 minute time frame. Looking back that is the craziest, dumbest thing you can probably do! That’s like trying to be a walk-on QB in the NFL while never throwing 1 single pass! Low float penny stocks are the most manipulated stocks on the market and trading on a 1 minute time frame before you even understand chart patterns, technical’s, candlesticks, etc is like drinking coffee and Red Bull before performing brain surgery. To control your emotions you need to slow everything down around you. Move to higher time frames, 10 min, 15 min, to get a bigger picture of what’s going on in the trade. Trade with smaller size, only focus on 1 stock, turn the noise around you off. Trading is actually really easy once you break it down, it’s our emotions that get in the way. There is nothing wrong with having emotions but you want to be a robot or sniper when trading, a stone cold killer because the market doesn’t feel sorry for you and takes no prisoners. Over time as you become a more consistent trader you will build confidence, you will learn to control your emotions.
I will leave you with one last quote and hopefully something to reflect on:
“Don’t let the expectations and opinions of other people affect your decisions. It’s your life, not theirs. Do what matters most to you; do what makes you feel alive and happy. Don’t let the expectations and ideas of others limit who you are. If you let others tell you who you are, you are living their reality — not yours. There is more to life than pleasing people. There is much more to life than following others’ prescribed path. There is so much more to life than what you experience right now. You need to decide who you are for yourself. Become a whole being. Adventure.”
― Roy T. Bennett