Whether you’re trading stocks, futures or exchange traded funds (ETFs), there can be a number of mental hurdles to overcome in order to be successful. The first step is to identify them. The next step is to conquer.
Thomas Bulkowski has some great tips on his blog, excerpted from The Inner Game of Trading by Robert Koppel and Howard Abell, that we thought were worth sharing here.
- Determine a Loss. Before investing, define an upside target, as well as a stop-loss so there is a point when you decide it’s time to get out. Simply put, if you are afraid to take a loss, do not trade. To this, we’d add that if you’re fearful of a trade, but the signals are suggesting that you should get in, do some research on the fundamentals and find points that support your position. Many are aware that selling can be emotional, but buying can be, too. Employing a non-emotional trend-following discipline can help you hit the buy or sell button so that you don’t miss opportunities because of fear.
- Don’t Hesitate. If you ignore trading signals in hopes of something better coming along, you could end up avoiding the trade altogether. Be prepared with a strategy, and stick with it. This takes practice.
- Unfounded Beliefs. Don’t hang onto your beliefs about how a position will perform so tightly that you can’t act when it fails to exceed your expectations. In the end, only your buy and sell signals should dictate your trade.
- Euphoric Trading. Don’t get caught up in giddiness. It’s easy to get excited about a winning trade, but all good things must come to an end, too. Be ready to sell when the time comes. By having a stop loss, you can help protect yourself when a trend reverses itself.
In order to become a better trader, it’s important to recognize these hurdles, overcome them with practice and have a strategy you can stick to. Find what works for you and use it.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.