Getting a grip on psychology

Psychology plays an important part in ones life. Psyching oneself to have a positive attitude to life can do wonders in achieving ones goals. So too in trading. Trading is not an exact science. It is a game of probability, and that is the reason why it is difficult to be right most of the times. Even the most seasoned players are sometimes affected by the ups and downs if the stock market. Euphoria can turn to despair in seconds.Thus getting a grip on psychology is the most important aspect of trading. You may be right technically or fundamentally about the trade you have put in, but if you have not got the right psychological approach your trade could go wrong. The fear of losing your money is high and unless you rein in this fear you cannot be a successful trader.

One way of removing this fear is to plan your trade from entry to exit before actually putting your money into it.

• Since we do not have easy access to data that will confirm essentials like integrity of the management, it is better to trade only the top 50 stocks which make up the nifty.
• First of all study the broad trend of the market. If it is in an uptrend then only pick stocks which are also in an uptrend. If the trend is up and the market is oversold, we would look for opportunities to go long. Or, if the trend is up but the market is overbought, we would become somewhat defensive, tightening stops in anticipation of a price correction.
• If the trend is down then it would be better to short sell. But short selling is a difficult game and it is much safer to watch the 'knife-catching' rather than take part. The sooner you recognize the advantages of this approach, the more capital you will conserve and be in an advantageous position to buy at the bottom.
• Analyse the stock technically ( will be detailing this very soon) to plan the entry.
• Introspect and arrive at your risk appetite level to be able to decide the amount of funds you will commit to the trade.
• Plan the exit. Remember this is a game of probability. A profit could tun into losses very easily or a small loss in a bad trade could multiply if you dont have a plan to exit. Exit can be by stop losses or squaring off as the target is reached. (Stop losses and target calculation will be dealt with separately , a little later).
• Never allow your trades to affect you personally. A loss can sometimes make you feel that you are worthless . If you do, you will find it difficult to put in a trade confidently.
• Never over trade. Trade only amounts with which you are financially comfortable else you may be left with no capital for a next trade.

REMEMBER

It is almost a certainty that when you lose in the stock market , you will experience negative thoughts such as Inferiority, Pessimism , Excessive Grief, Anger. Learn how to cope with these feelings by means of positive thinking. Positive thinking, in other words optimism, motivates you to never give up, which turns failures and set backs into comebacks and successes. Your thinking habits reflect on your trading. When a failed trade frustrates you, learn to accept the failure and learn from it.