I have often stated that the biggest challenge you will face in the market will not be hedge funds, market selloffs, shorts, pumpers, hype, surprise offerings, government policy, or any other outside force or event.
It’s you.
Yep, that pretty face staring back at you in the mirror each morning as you brush your teeth and silently plan out world domination is harboring some fairly self-destructive instincts, all swabbed in the glow of good intentions.
Perhaps glow is the wrong word…it’s more something about pavement, and the road to hell and such.
Now before you break out the Psych 101 textbook from college, don’t worry, it’s not just you. This is actually really, really common, and the good news…it’s entirely controllable.
So let’s examine one way of doing so.
Black + White = Green
Throughout my courses and coaching I’ve continued to push a common theme.
Your success should not be by accident, or at the dependence of someone else.
It should be continuously repeatable and controllable based on a simple to understand and apply system that allows you to easily spot opportunities and replicate that success over and over regardless of the stock or market.
That’s a bold statement when you think about it, but it’s true.
I break down exactly how to do this in my Learn To Fish courses including the mechanics of finding the bottom and how that set up replicates across any stock you care to trade.
That said, we’ve all had an off day, missed an entry or exit or opportunity, or gotten distracted, or even totally forgot we were in a trade (yep, that happened to me). All of that can trigger over trading, revenge trading, and ignoring risks.
These nasty conditions manifest in your trades by;
- Getting impatient and not waiting until confirmation of bottom to enter a trade, searching for a ‘win’
- Accumulating multiple bad entry losses
- Not trusting the process because your confidence is shot because of said lousy entries and losses
- Getting more and more frustrated and unable to see that if you correct the entries, you don’t get near the occurrence of losses
- Taking oversize risks to try to chase what you’ve given to the market
- ‘Believing’ in the stock, rather than trading the chart that’s in front of you
- Holding too long, or not long enough because you’re ignoring your indicators and are now trading on hope
None of which will be good for your account balance or those world domination plans. And here you were thinking you looked so innocent in the morning in that mirror of yours.
So how do you prevent all of this madness and mayhem?
Have clear rules and follow them.
You should have a simple set of trading rules that should not just be about the mechanics of when to enter, exit, and how. It should include behavioral controls that if followed, keep you out of trouble.
I talk about this a little in my other blog entry “Endless Money” but let’s go deeper.
To do this, think in terms of black and white actions and reactions that remove the YOU from the equation.
For example, let’s say you are prone to holding onto a bad entry as accepting the loss makes you feel like you “failed” somehow, and that the loss is only realized if you go ahead and sell.
That’s a lot of YOU and your emotions in that statement. None of which has anything to do with a stock that is continuing to accumulate red numbers and chew through your account.
So, set an easily recoverable dollar limit for any loss that without exception it triggers you to cut the bag, and wait for the stock to change direction for a re-entry.
This takes the emotional element out of it and makes it mechanical. In other words, it takes YOU out of the equation.
Or, let’s say you’ve realized you’ve lost confidence to trust the process and are accumulating losses because you’re scared to enter when you should be, and then exiting too early because any up and down movement in the process makes you afraid of even more losses.
Set a rule that comes in two parts.
First, after any larger win or loss incurred, walk away for a bit. Go do something else, as either will trigger emotions of either infallibility or desperation. Do yourself a favor…shut down your computer and come back later.
I promise the market will still be here waiting for you.
Second, set a dollar figure, or sequential loss trigger point that forces you to ‘reset’. For example, “After $1000 loss, or any period of more than 5 sequential losses, I will reset to consistently making 25% of my target for a minimum of one week to regain confidence before making any larger trades”
Again, this takes out the ‘what should I do” questions and gets it down to a simple cause and effect.
While it’s not possible in a short blog to cover all scenarios, these examples should give you some idea of the concept.
Take the YOU out of it and make your rules a clear actionable set of trade conditions. An “If/Then” equation as it were.
After all, black plus white not only equals green… it keeps you there.