Are you focusing on the right thing?

2011,May,20

Posteado por passiontrader a 00:28:11

A lot of people believe that trading is all about luck. You must be lucky to buy the correct stock at the correct time. You must be lucky to sell at the correct moment. Well, I do partially agree with them. Trading is not only about luck, but more importantly, in the management of risk and psychology. If you do not manage the 2 elements well, even if you are lucky 99% of the time, you will still end up with nothing in your pocket (worse still, may even need to sell your pants to pay for your losses!!).
Most people enter the market only thinking about how much they can win in their trades, how much they want to make, and even how to spend the money after winning, and most often than not, they find themselves facing disappointment after disappointment. There’s a saying that in order to be happy, focus on things that you can control and forget about those that you can’t. You can’t control how much money you can make in the stock market. You can’t control the market to rise or fall (unless you are the BIG boys, but then, if you are, I don’t think you will be reading my blog). Simple equation. Profit = Revenue - Cost. If you cannot control your revenue, then the only thing you can control is your cost (loss). Put your time in managing your losses. It’s something that you are capable of controlling. You are able to decide how much money you want to lose in every trades that you made. This doesn’t make sense, you may ask. Who on earth, having the right mind, will want to lose money? I agree, but life is never easy. I can bet you with my life that one day, losses will hit you hard on your face, and since it’s going to happen anyway, why not face and manage it? There’s just one problem. Are you able to put it into action?
Another thing to focus on is to learn to control your emotions. When the stock price falls to your stop loss, tell yourself that it’s ok because the loss is within my control. As long as I make my losses small, I’ll be able to make them back. If the stock price rises after you sell, tell yourself that I rather be stupid than to lose more money. It’s not easy, I know. I’ve been there, done that. It might take years for one to overcome such emotional stress, but it’s something that need to be done if you want to continue trading. Experts have suggested having a journal to write down all the trades that you’ve made, listing down the conditions why you buy or sell the stocks and how you feel when you do the trades. That will help you understand yourself better in future trading. I do that, and it really helps.
Focus on minimizing your losses and emotions. Stop focusing on how much you want to make in your trades. If you can manage your losses, your profits will take care of themselves. Focus on the right thing and you will see yourself making money in the years to come.