Let’s face it, trading does not always make sense because the market often punishes and rewards the wrong people. In essence, trading feels a lot like gambling even when you try to convince yourself that you are following a legitimate strategy when deploying funds and trying your best to understand the fundamentals of a company. On the other hand, there will always be gamblers in the market who happens to benefit from riskier moves like buying at a high or even holding when signals are pointing towards a downtrend. These constant mixed feelings and thoughts cause traders to constantly doubt themselves and potentially derail them from their original strategies. In this week’s post, we will be focusing on how we can manage our thoughts and prevent ourselves from being trapped when we are trading.
Allocate a fixed amount of funds for each counter
It is utterly tempting to keep pumping into one stock that has gone below multiple support levels however, we should always stick to the original amount of capital designated for a counter. Feeding a beaten-down counter will not only drain your capital but might also affect the plan you had for other counters in your watchlist. I think this discipline and humility differentiates traders from gamblers as we understood the risk before we execute the plan and we will not overexpose ourselves due to greed. Instead, always plan ahead for the unthinkable and perhaps set aside a contingency for the worst-case scenarios that might occur.
It is ok to be wrong sometimes
Being a trader means that you are constantly believing that the stock will eventually move as planned for you to exit and take profit. Hence, it is absolutely normal to be incorrect in our expectations as well. That said, there is no way a stock can move in one direction indefinitely unless it has been fraudulent and has done multiple illegal acts for extended periods of time. Therefore, the supposed level of fear must also be justified as well. Rather than believing that the stock you bought will fall indefinitely, it will be healthier to seek alternative opinions from a period whom you trust. NOT people from forums who are always trying to sound smart (honestly, they might just be keyboard warriors for all you know). Instead, continue to read up and consult legitimate sources online to regain the required confidence to execute as planned.
Do not expect any specific reaction from the market
There is no need to wait for any reaction to happen on the market. What I have learned on multiple occasions is to just look at my watchlists and counters as they are. There is literally no need to expect the market or counters to go up or down because of this news or that statement released. Being reactionary puts you at risk of making decisions prematurely and will ultimately throw you off guard as the market will never fail to make you feel stupid. Therefore, do not overthink or second guess the market. Yes, there will be times when there are erratic price movements and or sudden surges without any supporting news items but they are bound to happen from time to time.
Closing Thoughts
My genuine hope for all traders and investors is for everyone to stay humble. At some point, the capital you have invested might make you feel like you are “someone important” but more often than not it is much smaller than you think. The market and its players combined are overly complexed and indefinitely more sinister than you can ever imagine. So the next time when you are about to spiral, walk away and reset your thoughts before making your next move, stick to your plans and stop imagining that you can outsmart the market.
