The pursuit of “buy high and sell low” is just one aspect of trading exchange traded funds (ETFs) and stocks. The other aspect involves continually looking inward and exploring the role your head plays in the way you invest. Brett Steenbarger of the most excellentTraderFeed outlines ways investors can evaluate themselves, and we’ve thrown in some of our own thoughts, as well.
By examining your emotions, you can uncover both potential stumbling blocks as well as potential strengths. Depending on the trader, the answers will differ. Stop by Brett’s blog for more stories like these. He has a lot of sound advice.
1) What is the quality of your self-talk while trading? Are your thoughts negative, positive or neutral? The things we tell ourselves as we trade can impact the decisions we make or how we act.
2) How would your performance change if you eliminated a few days where you lacked proper risk control?
3) Does the size of your positions reflect the opportunity you see in the market?
4) Are you adding losses onto losses because of frustration? It can help to step back and figure out what isn’t working first, then strive to change it by finding strategies that do work.
5) Do you cut winning trades short because of fear or emotion? By employing an exit strategy, you may gain the confidence you need to stay in until the trend winds down and sends you the real signal to let go.