Winning in the stock market is a lot like winning in life!
Sure there are specific skills necessary to improve…..but if you don’t have the right mindset, you are doom to fail from the start.
No, it is not about finding the perfect indicator…
It’s about following a specific repeatable process both physically and emotionally.
So what does this process look like?
1.) It starts with having clear goals
This makes a lot of sense if you think about it…
It’s very difficult to get where you want, if you don’t know where you want to go!
When we talk about goals, we mean specific ones! Not…..”I want to have success in the stock market”.
For example, do you envision yourself actively trading or do you see yourself having a passive role?
This will determine whether pursing short-term trading or investing is more suitable.
Why is this important…..because these two styles are very different in terms of the skillsets one needs to learn.
You have to be ruthlessly honest about what you are and aren’t willing to do.
Sometimes folks living on the West Coast will reach out to us expressing their interest in day trading.
Yet, those same people will say they don’t want to wake up in the morning!
That’s akin to wanting to become a dandelion picker, but looking to avoid meadows…
While this is only scratching the surface as far as goal setting is concerned, it should give you some idea of what to focus on.
2.) Have a plan
We’ll be the first to admit, trading loosey-goosey can be fun…
The problem is “fun” and “success” rarely go hand-in-hand.
While having a plan is important in all facets of life, it is especially important in the stock market…
Why?
Because trading is a probabilities game!
This means that it is difficult to decipher whether a trade did well because of a specific action or sheer dumb luck.
Let’s say you were given a die and were told you would get $50 if you rolled a three and lose $50 if you rolled any other number.
Anybody with half a brain 🧠 would know that this is a foolish proposition…
The reason is because you know that there is only a 1 in 6 chance of rolling a three at any given time.
What if you didn’t know that though…..how would you figure out whether this is a good deal or not?
The only way would be to use the law of large numbers to determine where the probabilities lie in the long run.
The stock market operates in much the same way…
We won’t know whether we are accepting a “good deal” until we have a large enough sample size to work with.
In order to have a large sample size of trials in the stock market though, you need to stick to a specific trading plan.
Otherwise, it because virtually impossible to figure out what is actually working and what isn’t!
3.) Keep emotions out of it
It is one thing to have a plan…
Sticking to it is a whole other story!
There are a number of reasons why folks don’t follow their plans, but the number one reason is emotions…
While we like to think of ourselves as rational beings, the reality is that most of our daily behavior is driven by emotional responses.
The problem with emotions is that they have the tendency to distort reality.
This results in the rationalizing of illogical behavior in order to satisfy one’s emotional needs.
Anyone who has experience with trading knows what I’m talking about…
Bob is interested in stock X. He has a plan to cut losses if the 10% below the current price.
The price action ends up doing just that, but Bob has a change of heart…
What if it goes up write after he exits his position?
What if there’s a support level he’s not seeing?
Bob doesn’t want to exit the position, because emotionally he doesn’t want to take the L.
What is his mind doing?
It’s giving him all kinds of logical sounding reasons as to why he should stay in his position.
The way to mitigate this issue is to have the decision making done before the emotions kick in!
This comes down to discipline…..following through with the intended action no matter the emotional state.
4.) Learn from mistakes
Even if you follow the above steps perfectly, mistakes and failures are inevitable…
This is where having a “growth mindset” is key!
If you follow a concrete plan, as highlighted above, you will easily be able to identify what is and isn’t working over time.
At this point, you will be faces with two options…
- You can try to learn from these failures
- You can ignore them
While folks often assume that the first choice will happen automatically, this is often not the case!
Why?
Emotion, emotion, emotions…
Facing failures head on will often trigger mental reactions that are not particularly enjoyable.
As with anything in life though, the more you learn from mistakes, the better you will become!
While these 4 steps are much simpler to understand than your average trading indictor, do not be fooled…
It takes a ton of practice and discipline to master.
So get out there on the battlefield and start applying them!
That’s all for today…
Until Next Time,
-Damian