We will never find a trader who has not faced a losing trade or lost money. It is futile exercise to avoid loss making trades as it is impossible to predict the markets.
While we are paper trading or doing mock trading, everything goes efficiently and it makes us believe that trading is not so difficult as we had thought. But once we switch over to live trading all that changes. We become tensed up and our mind starts working overtime. When the trend is in our favor we are at peace and in a happy mood. When the trend is against us we sit up and begin to think whether we should close the trade, wait for some more time with the hope that market will reverse, or buy more to average out. These are only a few of the thoughts from the many others that cross our minds. Each one of us is different and the thoughts are also different. Why is it so different now while it was an easy ride when we were doing paper trading? We believe we are all mentally strong and have control over ourselves. But when we begin live trading things change and our real self emerges, our emotions take over us.
It is very important that we learn how to control our emotions. We should look at trading as a mechanical activity. Our trading plan should tell us what we are supposed to do and we should follow our trading plans with discipline. In the long run, this will lead to handsome profits.
A little bit of introspection is required before we begin trading. We should be able to answer the following question in the affirmative.
Are we able to trade with a clear mind? Thinking clearly and not being influenced by emotions. We should be able to become emotionally detached from our trades. Dr. Van Tharp, a renowned investment expert, breaks down the trading process into three categories as follows:
- Trading strategy (10%)
- Money & Risk management (30%)
- Psychology (60%)
In live trading major role is played by emotions like greed, fear of losing and impatience. Ego is another factor that effects our trading. The markets are not bothered about what we are doing. We should look at the market as our friend and not our enemy. Egoistic traders usually look at the market as their competitor and they believe they will have to win over the market. Such an attitude is a sure path to failure. Successful traders move along with the market. By doing so they take advantage of the price movements and earn profits.
The solution to trade with a calm and emotionally detached mind is by becoming disciplined. We should have a tried and tested strategy. We should follow this strategy at any cost. We should not keep tinkering with it every now and then. Losing trades are inevitable and we should learn to take them as a business loss.