“Successful trading is always an emotional battle for the speculator, not an intelligence battle.” -Jesse Livermore
None can be more precise and personal about trading than Jesse Livermore in this quote.
As an investor, you must have been through so much of emotional train wreck whenever you decide anything about trading. Because trading is a flood of opportunities for buyers and sellers, emotions at the time can be overwhelming enough to mess up your strategies which can ultimately mess up your returns.
Your own emotions like doubt, fear, anger and anxiety can be your biggest enemies in trade if you don’t keep them in check. Although proper knowledge about the fundamentals of trading is what it takes while making your investment decisions, your emotions can show up as harmful enemies.
Here are some of the emotions that you deal with during trading at all times:
Fear: Fear of missing out, often referred to as FOMO is very common during trading. Investors are there to invest, to make the most out of the opportunities and the investment market being ever dynamic, many a times investors feel like they are missing out on something. The urge to buy when market price is low and vice versa, investors suffer from fear of missing out on several opportunities all the time.
Also, the fear of losing is always there for those who invest and there is really no solution to this unless you are capable of acting indifferent to your emotions while trading. If you have already lost some money while trading, you are more prone to fear during your upcoming investments and trading decisions.
Anxiety: Being a part of the market which is ever-dynamic, can be an overwhelming experience for all the traders. While trading, one has to make some pretty scary decisions as there is no certainty in market even in the immediate future. So, being in these situations constantly, a trader’s mind can easily host anxiety making it harder to make a logical decision.
Greed: Greed is something that we, the investors, are notorious for having the most. When an investor or a trader experiences greed, they try to go for too much profit in less time and end up losing big time. People tend to get scared by a little dip in market and make decisions hurriedly while investing or trading. Needless to say, if you are not disciplined and have fallen victim to greed, your investment decisions will not be as good as you might expect.
Here are some of the ways you can keep away with those unfruitful emotions while you make important trading and investment decisions:
1. Develop a plan and stick to it: Now that you are actually going to immerse yourself into the world of investments, you need to plan ahead how and when you will be doing it. First of all, make a strategy and allocate your resources and plan how you are going to make it work for yourself. The plan may be as much as generic or specific as you want.
For example, you can make a plan to buy or sell certain numbers of shares that you have in mind in this month or make a plan to at least invest $100 in the market. However, the tricky part is to stick to your plan through execution without being emotionally driven.
2. Give some time before checking on your portfolio of investment: If you are the type of person that checks on your investment portfolio every single day, this habit of yours is actually inviting the roller-coaster ride of emotions. Now how can you stop yourself from learning about the market and stocks when that’s all you do? The solution is to give it some time.
You can check on your portfolio every month or every fifteen days but making it more frequent than that is not a wise choice, as you’re highly likely to mix up emotions while making investment decisions. If your investments must be checked on a day to day basis, you can always let a trusted third party handle it.
3. Rely on your own research: Blindly trusting the media is the last thing a rational investor should be doing. Even if you are just starting out in the sector of investment or you have turned your hair grey in the market, your best friend for decision making is your own research about the market. You can, however, talk to people or analysts who can better understand about the market scenarios and take their advice but the decision must be your own.
Using these tricks, you can more or less have a disciplined investment strategy without being controlled by emotions and can decide in a rational way. If you already have some solutions that have been helping you keep away emotions while investing, please enlighten us with your comments in the comment section below.
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