Welcome to the world of trading! For conventional players in the stock market, trading is like gambling. They call it “satta bazaar” or gambling and stay away from it. They like to stay invested for long periods of time and think you cannot make money with short-term positions.
Well, some of the above is partially right but remember there is a time value of money, be it in the short-run or long-run. Trading may not be a bad option to hedge your money or capitalize from short-term opportunities. However, there are some key factors to be a successful trader. Successful trading stands on three pillars:
- Psychology
- Money Management
- Trading System
- Trading should be taken as a full time business. Follow all rules of business and be serious about it. There is a lot of hard work and data crunching required to be a successful trader, remember the SEBI report which states 6 out of 100 traders make money in the options segment. Hence, the odds are against you.
- Keep emotions away. Follow systematic trading based on rules. Emotional trading or expecting reversals in markets can be lethal. You can succeed in trading only if you handle it as a Serious Intellectual Pursuit. A Good Trader will always play the setup and not the counter.
- A good trader watches his Capital as carefully as a professional scuba diver watches his air supply. One bad trade has the potential to wipe out entire capital. Remember to trade with rules defined and keep stop loss in place. Remember markets will exist forever but one bad trade can throw you out for lifetime. It is a marathon, not a 100 m race.
- You Require Money to Make Money in Stock Markets. This is the most important point because capital is required to be deposited as margins with the exchange. The money grows when you have money to invest, this is the power of compounding.
Emotions of Traders
- Hope
- Greed
- Fear
- Regret
Entry to the field and starts the cycle of trading. The birth of the baby. e.g.– Information/Tip/ Broker’s Call/High velocity Trade/Jhatpat Money / Sure shot call etc. Based on above to take a decision to ACT ON THE CALL, but Hope can also be one of the most dangerous of all human emotions when it comes to trading. IT’S HOPE WHICH STARTS THE CHAIN REACTION.
FEAR
Fear comes second in the chain. Fear is probably the most lethal of all human emotions. Fear leads to panic. Panic leads to poor decision making.
Math’s says
1 + 1 = 2
BUT
fear makes us believe
1 + 1 = -1
FEAR is probably the most DESTRUCTIVE of all human emotions.
GREED
Her again Math’s says
1 + 1 = 2
BUT
GREED makes us believe
1 + 1 = 3
Never ever let a winning trade go to your Head or a losing trade to your heart. Keep your greed in control and never regret missed positions because the markets are cyclical and more opportunities will arise in the future.
REGRET
The negative implications of this emotion are obvious. It is only natural for a stock trader to regret taking on a losing trade or missing a winning trade. We all have regrets in life, this is an inbuilt human quality, however, the same has to be kept in control when it comes to the world of options trading.
TAKEAWAYS
It is normal to experience these FOUR Powerful Psychological Elements when trading or investing in the stock market. Being aware that these emotions are always right on your doorstep is the FIRST STEP to being disciplined enough to OVERCOME them.
MENTAL CAPITAL is JUST as IMPORTANT as FINANCIAL CAPITAL. PROTECT THEM BOTH FIERCELY.
In trading, your mind may be the ultimate technical indicator that determines whether you persevere and win in the markets or get broken in half by fear, greed, ego, stress, and uncertainty.
No matter whether you are an investor, retail trader, prop trader, or professional money manager your success will still be determined on the management of your mind. Never underestimate the importance of keeping a …… cool head in rough times. Where we Perceive Maximum Safety, that’s where Maximum Risk Lies.