WORDS OF WISDOM FOR THE DAY : The Principles Of Successful Speculation Are Based On The Supposition That People Will Continue In The Future To Make The Mistakes That They Made In The Past....!

 

The above you just read appears in the timeless investing quotes of many experienced stock traders in the market. Many of these traders are famous for greatest trading minds of all time but yet fall prey to their own emotions. Even the most brilliant traders in the world make mistakes. Not only do they lose money occasionally, they tend to make ill-adviced trades over and over again. Anyone who claims anything different is probably full of something other than trading profits.....

 

The problem with stock speculation is that traders are human beings, and therefore rely on the same, predictable emotions as everyone else in the world. This is what makes trading patterns easier to predict, and how the majority of traders make money. However, when you capitalize on the emotions of the herd, you need to be careful to not get swept away into any bad decisions that could hurt your bottom line. To help keep you on track in your own trading, I have detailed 3 common trading emotions, along with how you can avoid the pitfalls and trading losses that go with them:

 

1) GREED - Every single trader is in the stock market to make money. If you are not, then I am afraid you are in the wrong place. But there is a distinct line between wanting to succeed at trading, enjoying repeatable profits as the reward for your success and being greedy. Greed causes overtrading and overtrading kills profits. Instead of patiently waiting for the ideal setups, greedy traders will jump on any stock that is moving. The result is usually the same everytime: a ton of commissions destroying what little profit was made earlier. The key takeaway here is to only trade the best patterns or setups. You don't always need to be buying stock just for the sake of having shares. If it helps to limit yourself to a certain number of trades per week, you should add a caveat to your trading rulebook.

 

2) HOPE - While it may sound innocent enough, hope can be the great profit-killer for traders and investors alike. Hope is dangerous emotion because it can cause irrational thinking. Hope is the reason some traders add to losing positions because they are convinced ther are correct and hope the market will eventually vindicate them. Unfortunately, the market does not operate under these rules. When you are trading a stock based on technical analysis, the market is always right. Before every trade you make, you must make a pact with yourself to sell the stock if it falis to do what you anticipated. If hope sneaks into the picture, prepare yourself for larger losses.

 

3) FEAR - A healthy amount of fear can be a good thing for every trader to posses, mainly because it helps convince you to cut losses early. But fear is a tricky emotion that can cause traders to behave irrationally. We have all experienced the same fellings when a stock we were not watching at the moment stages a breakout move. When you finally notice, the stock is up a significant amount, yet you can't shake the feeling that it will move higher. In this case, fear has a powerful grip. Instead of fearing losses, you are afraid of missing out on potential profits. This lead to chasing the breakout and either severely limiting potential gains and wasting a trade. My solution to this problem is simple: If you like a stock that has already broken out, make it a rule that you cannot buy shares until you have waited at least one hour from the point when you wanted to buy. If the stock pulls back to an acceptable entry point, feel free to buy the shares. But if it continues to run, accept that you were too slow and move on to your next target in the stock market. With a self-imposed time limit, you will eliminate impulse trades that can wreck havoc on your hard-earned gains.