While on the MRT home today, I went deep in thought again. I think I am beginning to understand the importance of psychology in trading. How do you maintain a healthy mentality for trading? I think the most appropriate answer to that would be to avoid doing things that will affect your psychology. Think about a smoker who has just quit smoking. Put him together with a group of 10 smokers, chances are, he will be tempted to light up a cigarette. If he can resist despite the temptations, he has master the power of psychology. Now put it back in trading, if you sucuumb to greed and deviate from your trading plan while monitoring closely the market actions, you has lost control of your psychology. Summay, inorder to maintain your own discipline to stick to your trading plans/rules/system, do not do anything or get close to anything that will affect you psychologically. Some of the things I think will affect your psychology are:
- Counting your paper profit or losses
- Looking at market price actions every minute
- Thinking about your heavy losses
- Listening to market rumours
- Rued at missing a chance, or stocks that has rallied above the norm.
- Sitting on paper losses
The list can go on. As long as it is something that will cause you to deviate from your trading plan, list it down and paste it somewhere. Before every trading day, look at it and try to avoid them.
Another new thing I had learnt is the ability to lose. Yes, it may sound wierd, but i find that it's true. In every trade, we should only allow ourself to lose an amount that is not painful to us. This will ensure we are not psychologically affected by the loss. Let me describe a logical plan, supposingly, you get to keep a cash savings of $1000 into your bank account every month. You decide that you will risk $200 every month in invesment. Hence your maximum lost per month should be capped at $200. Lose it and you shall wait for the next month. This way, not only your savings will grow money, your trading account will not be de-capitalised too.
LAst but not least, DO NOT SIT ON PAPER LOSSES - You are wrong in your analysis hence the price move opposite you. Why are you still holding?
Hmm...I think i am going to publish an E-Book about my lessons in Trading. Anyone wanna share the publications? :P keke
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