We should clearly understand
that we have no control and capacity over the market’s direction.
Fear:
The problem is that we all
want to succeed and when we do make a loss, it is easy to let those losses
effect us emotionally out of fear to lose even more.The trader exits
a trade as soon as the market hits the slightest bump even though the broad
market is very bullish and the fundamentals of the company he's trading are
good. So instead of being patient and waiting for the trade to go up again, he
sells and accepts the initial loss out of fear of losing even more. Without any
rationality, a trader holds on to a losing position for too long hoping for it
to go up again. Even when the news and fundamentals are hopeless he won't give
up forgetting that this attitude can easily lead to a total loss.Fear of not wanting to miss
the boat and quickly jumping on. This can very often notice in investors who
listen to tips from friends and TV, where so called "experts" speak
up trying to sweet-talk you into a trade.A trader sees the market go
up rapidly and confirmation is all over the news. The excitement of a rising
market is in full swing. Afraid of missing out, the trader makes a hasty
decision and dives right into a trade.
Greed:
You become too greedy when you win a trade. It is as harmful as becoming depressed when you
have a losing trade.You are
actually afraid of losing a profit. You hold on to a winning position for too
long. Your expectations keep on multiplying. You may have
made a substantial profit and now expect to make 100% or 200% profit. When the market slides below the 'Great Expectation' , you still hold on hoping for your profit to go
back to the same old high before you sell instead of accepting what ever profit you are getting currently. If you don't control your greed you may wipe out the entire profit and may end up in LOSS. It is seen traders that have
watched their profits erode without doing anything about it. They held on to
their positions right up to an almost total loss. Very often they then think that their trade has gone down and there is nothing they can do and just hold on their position.Fear of
losing out on a profit may even cause a trader to sell a winning trade too
soon.
Watch out for fear and
greed. You have to be BALANCED.
Practice the following so that you can overcome
common trading harmful emotions.
Act early and defeat these common feelings:
Book a ‘Loss’ EARLY:
Booking loss & profit
are both equally important. Don’t be afraid to take a loss. All that matters is
volume of loss. The sooner you will act
smaller the loss. The Volume of Loss & Profit determines your success.
Loss and profit are both part of the game. This one should evaluate before purchasing,
what amount I can stand to lose.
Plan
all your trades in advance:
Don’t act without a plan.
You should clearly set your objectives in advance, if the investment goes up
what is your EXIT POINT, after what % of
profit you will quit no matter where the market heads. Similarly you should
decide what % of loss is END OF THE GAME. This way you will not be swayed away by
emotions.
Control
your EGO:
‘I have spent so much time
in picking and selecting, it’s my well calculated decision….How can I go
wrong ...’ Just see the truth, face
the facts and accept it. There is nothing wrong, we all make mistakes. Learn to correct the situation faster instead of becoming emotional. You have not married a particular stock. Quit a loosing situation fast and forget completely. Move
on to plan next strategy.
