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Quell the uncertainty

What matters is that you quell the uncertainty and doubt that pollutes your decisions by planning ahead for all possibilities.

We all need to simplify our lives in this increasingly sedentary, medicated, and noisy world. But even more critical, we need to remind ourselves to do nothing sometimes and just think about now.

Skate.
 
Why education is the key

I’ve read umpteen books and trading articles, I’ve listened to more podcasts than I care to remember, keeping my eyes and ears open, hoping to learn from successful traders, finding out what sets them apart from the average investor, trying to learn the secrets of their success whilst trying not to repeat their failures.

Skate.
 
A quote from Will Rogers

The cowboy, Will Rogers said, “It isn’t what we don’t know that gives us trouble, it’s what we know that ain’t so.”

That is particularly true when it comes to the stock market.

Skate.
 
Irrational people

Trying to guess what an irrational person might do is sometimes futile. The market illustrates that point quite often with movements that defy explanation. We often see situations where stocks continue to climb even though almost everyone would agree that it is totally unjustified. This occurs because investors are focusing more on other investors and what they might do rather than any inherent characteristic of the stock or the market itself.

Skate.
 
Psychology

I’ve tried to understand the psychology of the winners and how it differed from the losers and I soon realised that the psychological outlook of these trader was their most important attribute, separating the winners from the losers.

Psychology plays the biggest part in trading as it allows you to be able to overcome and handle the pressure of trading.

Skate.
 
Stress

It’s vital and very important to learn how to train your mind to accept stress and how you should react when placed under stressful conditions than anything else you are going to learn. Controlling your emotions, training your mind to stay calm under pressure, controlling how and what you think is important, and how you react to stress will decide whether you’ll be a success or a failure at trading.

Skate.
 
Learning curve

Very few people succeed in this process as the learning curve is too steep and the correct psychology is too hard to implement. If you have any attachment to making money, and who doesn’t, it is very tough to trade successfully and correctly.

Skate.
 
Brains

Brains are an overrated attribute when it comes to trading. Smart people tend to think logically and have a hard time dealing with a market that ignores what should be painfully obvious. The market is very emotional and illogical at times, and if you are too analytical, you will be surprised often. Using logic to argue with a lunatic is useless, and using logic to figure what the market might do on any given day is equally useless.

Skate.
 
Irrational and moody

One of the key advantages we have is knowing that the stock market is irrational and moody and prone to doing unexpected things. We recognize that we can take steps to profit when the mood is unusually good or run and hide when things become dark and gloomy. Investing is like most other worthwhile things in life. If it were extremely easy to learn and do well, it wouldn’t be so potentially lucrative.

Skate.
 
Investment success depends on two basic things:

1. Picking good stocks that increase in price, and
2. Effectively managing the stocks after you buy them.

Effective management means having a plan for either cutting losses or taking gains. Managing your stocks after you buy them is what determines your level of success. Great investing results are a product of shrewd selling rather than smart buying.

Skate.
 
Lousy picks

All investors will buy their fair share of both good and bad stocks. Even the best investor has plenty of lousy picks along the way, but it is the manner in which you handle those investments after their purchase that ultimately determines your level of success. If you sell your good stocks too early and hold on to your bad stocks too long, it doesn’t much matter how good your stock selection might be.

Skate.
 
Selling

Successful investing is largely the art of selling. Buying a stock is easy. It is determining when to cut our losses or when to take our profits that is hard. Because it is so hard to determine when it is the right time to sell, many just don’t do it.

Skate.
 
Selling is a valuable tactical tool

Selling a stock is by far the most valuable tactical tool that the individual investor has at their disposal. Selling is cheap and easy and can be undone in the blink of an eye. Too many seem to think that if they sell a stock, they are somehow prevented from buying it back again. Not so..

Skate.
 
Luck
To a great degree, our success or failure in the market is a function of our luck. We like to think that our results are a direct consequence of our insight and efforts, but the reality is that luck plays a big part in how we do.

Punching Bag
No matter how smart we are, or how hard we work, we will regularly be hit by news, circumstances, and developments that are unforeseen and unknowable. The stock market gods will periodically use us for their entertainment, and there is nothing we can do to prevent it, so we have to be ready and mentally prepared.

Skate.
 
The Key to Success

The key to stock market success is properly managing your investments after you buy them. The way to do that is fairly simple.

1. Don’t be afraid to sell.
2. Have a methodology that clearly establishes exit points.
3. Diversify by having a parcel of stocks.

Investing is not a rigid, structured approach to the stock market with an unvarying set of rules and what works best is highly subjective.

Skate.
 
Your feelings

Good investors tend to be amateur psychologists. Not only can they understand the emotions that are driving the market, they also can objectively consider their own emotions and feelings when the impulse to act occurs. When you are trying to make decisions about the market based on your view of the prevailing mood, sentiment, and/or psychology, you have to be particularly aware of how your feelings affect your thought process. This is true whether you are making money, struggling with big losses, or riding a long winning or losing streak.

Skate.
 
Emotions colour your attitude

Emotions colour your attitude toward the market and often push you to act when feelings of fear or greed overcome logic. Self-awareness is a valuable trait to cultivate in many areas of life. Investing is no different. The role of emotions becomes even more important when the market has been trending down.

Skate.
 
Success

It is my belief that to succeed in the financial markets you need to have some kind of trading system in place. Trading systems protect the trader from his ‘inner child‘– the limbic side of the brain that relies heavily on emotions and gut instinct (the Lizard brain)

Skate.
 
The inner child - the Lizard Brain

The inner child is quick to react and respond to incoming dangers. It often makes snap decisions based on emotion or a feeling. Thus, the inner child is crucial for human survival but is not so useful in trading where more rational, evidence-based decisions are best.

Unfortunately, the child part of the brain runs about five times faster than the rational side of the brain, which is why it’s important to try and recognise your inner child and pull back when you notice it taking over. In trading, systems are the best way to combat the inner child and trading systems will make more calculated investment decisions.

Skate.
 
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