Trading emotions
You know your trading strategy inside out.
You have your trading rules next to your computer.
You've applied your risk management for each trade taken.
So no need for emotions to play a part in your trading, right?
Wrong!
Most traders think once they have a strategy (or have found what they think to be the holy grail) trading is then easy.
But trading is far from being easy - regardless of your strategy or super-secretive special indicator.
And that's because it all comes down to how you mentally handle yourself when the market has a pullback.
Pullbacks are when we see the amateur trader get separated from the smart money.
At the very first inkling of a pullback, the amateur traders emotions will often heighten - and, from there, will tend to lose money by either being repeatedly stopped out or being too scared to get out.
Either way, the market will often leave most traders behind as the bull market resumes (having had its rest period).
Emotions are the biggest element of failure for traders and this often shows up on the first sign of a pullback.
When a trader risks real money, the fear of loss can be overpowering - which in turn causes emotions to heighten.
And regardless of how seasoned a trader you might be, everyone is human - which means everyone has a threshold.
A test of that point can cause traders to behave irrationally and break all rules.
Building your stamina and increasing the threshold to withstand a pullback takes time - and often trading scars, too.
It all starts with risking appropriately and trading sensibly.
Break those commandments and you are not trading, you are gambling.
Assuming risk has been adhered to (know your exits).
Have virtual or actual stops where 'price shall not pass'.
If price gets to these levels, then this must be where you part ways with the stock.
It does not have to be goodbye - just au revoir.
You can always revisit the stock and get in again once it starts to behave.
While the above is essential for swing trading it can be applied to growth stocks, too.
The main difference is that for swing trades the exit point will be based mainly on technicals.
For growth stocks, technicals can play a part - although the main reason for exit would be a shift in the fundamentals.
We know from the start, with our growth stocks, that the aim is to have trades open for many months or years - as such, short-term fluctuations should not be too much of a concern.
We have had to endure pullbacks - some of which have been quite lengthy - many times over the years.
Once we went negative from February until mid-September, only to quickly turn around and speedily accelerate through to the end of the year!
You must accept losses as part of trading - but don't take losses unnecessarily.
If the trade you took was based on fundamentals then that part of your analysis may not come into play for a while (weeks, months, or more).
Jumping out of a trade because it is not doing what you want, when you want it done, is for amateurs.
Wait patiently, as the professionals do, and let the amateurs get shaken out while you stand firm.
The market does not care about you and doesn't even know you.
It does what it does on its own time.
So keep risk right and emotions in check.
You have to be in it to win it.
Let's go trade!
