Market Psychology: Follow the Process
Level up. Win the mental battle, and watch the portfolio gains improve.
One of the most significant leaps I took as a trader/investor was establishing a system with rules. I struggled greatly with the mental battles the market loves to provide.
Should I buy the dip? Should I adjust the stop?
Sometimes I would stay up at night, unable to take my mind off the markets. Or I would wake up in the middle of the night, check the futures, and never fall back to sleep. It wasn’t healthy. I suspect you may have experienced the same. If not, a sincere kudos to you.
There is no perfect system, but everyone should establish one. The mental health benefits are not discussed often, if ever. Nobody told me to develop a plan, but I realized I needed one to survive the markets after many painful losses and sleepless nights. When I finally established a trading system that dictated when I would exit a position, I immediately lowered my stress levels, and as a result, performed better.
Win the mental battle, and watch the portfolio gains improve.
Steps I took that helped BEFORE entering the trade:
Identify the trend.
Guage the reward to risk on potential entries.
Establish the stop before entering the position.
Steps I took that helped once the trade was established:
Find a time when markets are closed to review the trades.
Verify that the trend remains intact.
Raise stops to levels that will confirm the trend is broken.
HONOR THE STOP.
Once the position is entered, it is up to the market to tell me what to do. I already know my stop-loss. I see the reward & the risk. My job is to manage the position and honor my stops. THAT IS ALL.
Some struggle with identifying trends. If you ask five traders what the trend is, you will likely get mixed answers on all of them. It all depends on their level of experience and timeframe.
Once a trader accepts that the market knows more than they do and needs to respect the signals the market is giving, they will free themselves from a significant burden and the mental headaches and battles that come with it.
Follow the process
Keep it simple. Journal your trades and keep the discipline intact.
If you keep a good journal, take a screenshot of the chart at entry & exit, you will be so thankful at the end of the year when you can go back and review your trades with fresh eyes. Sometimes we need to let things marinate and come back. End of year analysis is perfect for this.
To survive more than a few years in the markets, you need a system. If you expect to make a career out of it, take it seriously, like you would a job. Start thinking in terms of 10-year periods rather than 10-day periods.
Save your mental health & energy for other parts of life!
All the best,
Trace