There is a saying - You don’t trade markets/stocks. You trade your belief about stocks. Trading is all about managing our volatile emotions. And most of the times, they are more volatile than market. A study attributed to Harvard University found that Success = 85% attitude and 15% aptitude. The same applies to Trading, success = 85% managing emotions and 15% application of methods. No one is underplaying the importance of method. But people make/lose money not by method but by managing emotions. A good method is a must and can be a pre-requisite but not a guarantee of success. Trading successfully is not about having a right system but a right mind set in place. That is why despite having all the great trading systems available in the market, success is difficult to achieve. It all boils down to controlling emotional anxiety. Trading is a psychological game; the market is not “against the trader”, only the trader’s emotions are an opponent….if not controlled properly. There are two things one should do to control the emotions
1. One should not have any emotional bias about the market direction….because bias corrupts your mind and you always look for the direction you are looking for and ignore the price action on the screen.
2. Respect the trend i.e. look for trade setups in the direction of the broader trend. You can either be neutral or trade in the direction of the trend.
Remember, market does not care what you think. Market will do what it has to do and will do in the least obvious way. As a market watcher, observe the price action and visualize what it wants to do and if it confirms to what you visualize, profit from it. Good judgments are easy to make after the fact, but it is difficult to make the right decision in the heat of the moment. Hence trading success hinges on how you process your beliefs in real time when market moves from one phase to another. It requires lot of controlled behavior. The game is how one can protect oneself from getting into panic mode and also not let euphoria take over. Remember, Trading is the game of mistakes and emotions. It always has been and will always be. The trick is how you learn and don’t repeat the same mistakes again and again.