Staying mentally tough as a trader
It's tough to keep your head straight in the market game, isn't it? Particularly in the market conditions we've faced lately: all the bullishness we've seen feels temporary to many market pundits. Everyone seems to be waiting for the other shoe to drop, and it can be hard to find, and then successfully trade, a "true" market trend. In a market like this that lacks conviction, how do you keep your cool?
If you're looking for a good take on smart market psychology, here are two for you: first, I stumbled across Joseph L. Schaefer's yearlong series with Seeking Alpha about timeless investment classics. He'll be reviewing one such book monthly all year to see how these classics have stood the test of time - and what key takeaways he can find for today's market conditions. Check out the first installment on Extraordinary Popular Delusions and the Madness of Crowds.
If you're more of an audiophile, here's a webinar you should tune into during your next lunch hour: Andrew Hart of BigTrends.com recently presented The Most Important Trading Rule, which provides 10 points to consider when developing your trading plan, plus the #1 trading sin to guard against. Definitely worth a listen!
What's your golden rule for keeping your head while trading, and where did you learn it from?
[image: Kick Boxing... by claudiogennari on Flickr]
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Comments
Follow commentsTampaJake posted April 11, 2010 (07:36AM)
Good article. The line 'By understanding the patterns of greed and hope, and the ready willingness of charlatans to step forward to give us what we want, we might avoid the pitfalls that inevitably follow.' pretty much sums it up for me.
My golden rule is to trade with my head and not my emotions. I pretty much know when I enter a trade where I will exit, whether the trade goes in my favor or not. From what I read in the forums, too many traders enter a trade and don't have enough conviction to stay in the trade to see profits or enough sense to exit when the trade is not working. I know because I have been there on a few more occasions than I would like to admit.
corbinb2 posted April 12, 2010 (07:31AM)
I'll admit that once I get into the 20% profit area I get 'itchy' to lock it in. Some of this is due to the fact that I trade options and they can be more volatile than stocks,or at least less forgiving if they go against you. Stocks give you time to be right eventually right whereas options do not most of the time.
Not that I am complaining about getting 20% profit, just that when I'm right about a trade, it usually seems to go up a lot more after I'm out.
bigdog posted April 12, 2010 (02:14PM)
goldensax22 posted April 14, 2010 (12:25AM)
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