Mental Toughness Required by Traders Part-I

The way Novak Djokovic played yesterday to win a Carrer Grand Slam shows the mental strength required at such high level of tennis. On the Similar Grounds a Professional Trader need to develop a High level of Mental strength  to be successful over a period of time.

The current article is from my archives not written by me , Will share the same in 3 parts,.

The mental part of the game. Its an aspect of trading that can easily be ignored, we all choose how we approach this game. Some see failures as opportunities to learn and progress, while others see them as outright failures and road blocks which should be avoided at all costs. Its all about attitude.

I feel that trading should be ‘easy’ It should be effortless and without conflict. If we are going to be in this game for 20+ years. I feel its important to make the experience as easy as we can. We shouldn’t be ‘fighting’ with the market, in the boxing ring, hoping, fearing and stressing.

There is RISK management, but SELF management is equally as important. When we are actively trading the market, we are free to make buy and sell decisions whenever we want. The tough part is consistently making the correct buy/sell decisions. These decisions come with conflict!

Taking Profits

So this is the hardest part of trading. It can be made simple if we accept a few hard facts.

1. You will never sell at the top.

2. Your going to be wrong when you sell.

This is fact. As soon as you sell, the stock will probably keep going up. You may look at it 5 months later and its up 100% since you sold it. Point is, when you sell, your probably going to be wrong. This creates a conflict.

As humans, we do not want to be wrong. We seek perfection, we want to nail the top! It can help explain why people run up stocks 20% to watch them come all the way back down to break even. The reason why they did not sell is because they are afraid to be wrong. By selling you are forced to draw a line under your mistake. But being wrong in the stock market is inevitable. 

From a practical level we can always sell half, and let the other half run. This creates a psychological win win situation. If the stock goes down, hey you locked in half.. and if it keeps going up, hey I still own half.

Taking Losses

It is amazing as humans, how we want to avoid mistakes. I do not know the exact reason. But I know that outside of trading mistakes and failures are not acceptable. Perfection is strived for. It is installed in us from an early age. In school we get rewarded for being ‘right’ we get good grades and if we are ‘wrong’ then we get bad grades, we are a dummy. Its a generally negative experience to be wrong. In the work place, if we are wrong we can be punished. If we fail we can lose our jobs etc.. you get the point.

In trading when a position goes against us. We would rather ‘give it a chance’ or wait for it to come back. We do not sell because we do not want to admit that we are wrong. It is much easier to build in failure to your trading strategy. ACTUALLY expect to be wrong. Fully accept that you will wrong be A LOT of the time. It is inevitable. 

 

To be Continued