2:56, keep your emotions in check
Keeping your emotions under control is essential for successful investing and trading.
Buying because of fear of missing out, revenge trading or other actions based on emotions usually just cause losses.
Elder says “you may have to spend just as much time analysing yourself as you spend analysing the markets”
Alex Elder has several advices on how to ensure your emotions are in check
- Be realistic
Being successful with investing and trading is a long-term game. It is an investment you make in yourself over a longer period of time. It doesn’t require much to get started in a proper, profitable way. At the same time, having realistic expectations will help you out with practicing patience and thus not taking emotion-based decisions
- Keep a diary of your trades
Whenever you enter a trade, write down your reasons for doing so, and attach a print screen of what the situation looked like.
If you want help with specifically what are good reasons for entering, and what are not so good reasons for entering, let me know.
This is key routine in order to learn from previous mistakes, and to improve in the future
The key thing to be successful in anything is not to repeat the same mistake twice!
For me, this is one of the most boring parts of the investing and trading process. That is why I utilize tools to make this as simple as a few clicks to log what I need. That enables me to use one of the most important techniques to improve, that is using a journal
3. Setup rules before entering
When you join into the exciting market, there will be a lot of factors that can influence your decision. First and foremost, your emotions might get into the way
Other investors and traders might influence you
Knowing the rules, that you set in advance of entering, and following them, will be key to
your success. Knowing the rules, and following the rules, are two completely different things.
Committing to follow the rules before entering is important... when you are in the market, when you have already made an investment or a trade, it might be too late.
4. Stop trading
If you are taking on losses, stop trading or investing for a period, take a step back and analyse what is going on. Refer to your journal. What happened?
What emotions did your experience?
5. Don’t count money
If you catch yourself counting money and what you could use your unrealized profits for... it is time to exit the investment or trade. Why... because you are getting too greedy and risk too much. This must not be confused with one of the golden rules of investing and trading: let your profits run. It is all about what drives your decisions, logic or emotions?
6. Practice sound money management
We will explore more on this later