Today we are inundated with tons of information about the economy, stocks, government agencies and foreign governments. They show us charts and graphs of the increase/decrease in oil production over the last 5 years, the time it takes to bounce a signal off the moon and all kinds of other nonsense that we can live without. The talking heads on the investment programs, both radio and TV, tell us how this is going to affect the price of certain stocks and the market in general. Well, maybe.
This data is the process coin of the trade. You’ve got to get and adroitly use the data… it’s all about the data! You can’t excel at anything important without the information –the data- of what it takes to perform well. For instance, with trading you must learn about the mechanics of the markets (charting, drawing levels, indicators, news, economic reports and platform idiosyncrasies, to name a few). That data is critical to your success. By the same token, you must gather data about your internal self; the images in your head and the limiting and irrational beliefs that create emotions which drive what and how you take action… or not! This data invariably must be tracked, measured, verified and documented in order to identify what does not work, and what does. The documentation is like a fulcrum with a lever. I believe it was Archimedes who said, “…give me a lever long enough and a fulcrum on which to place it and I shall move the world.” So, your documentation allows you to identify those issues, set-backs, urges and problem behaviors that are severely compromising your ability to resonate with reality and maintain a laser focus on what-matters-most in the trade. But, you can’t do this if you become so distracted by discomfort from the internal or mechanical noise that you continue to act erratically.
When you step back to get a better view of the market because the trees are in the way you really get a different view. No matter what stock or mutual fund you own there is one important factor that is causing all of them to change. It is the mass thinking of all the people who own equities of any type. The stock market is a reflection of this mass thinking and causes changes in human behavior. This mass thinking does not necessarily reflect what the economy is doing at any specific moment.
Being able to tolerate those uncomfortable moments that disrupt your equilibrium and cause you to chase trades, move stops and exit trades prematurely is paramount to becoming a consistently successful trader. Without the ability to tolerate and be comfortable with discomfort you will continue to reach for temporary relief (those rule violations mentioned above) which equates to doing things that jeopardize the results that you want. In our “Mastering the Mental Game” online, on-location and XLT courses we teach tools, techniques and concepts that are specifically designed to support you in remaining on task, on target and on purpose with your trading in order to plan your trades, follow all of your rules and keep all of your commitments; in other words, to be comfortable with discomfort. Ask your Online Trading Academy representative for more information. Also, get my book From Pain to Profit: Secrets of the Peak Performance Trader.
Currently many people are becoming bearish and think the market is headed lower, but no one really knows until after the fact. It is dangerous to be either bullish or bearish at this moment. So what is the best course of action when you are not sure of what to do with your money? Keep in mind that protection of your capital, especially your retirement money, is a prime consideration. If you own a stock now that has been going up you don’t want to sell it, but you can protect yourself against loss and lock in profit by placing an Open Stop-Loss Order with your broker. Keep moving the stop up as the stock goes higher.
If you have a stock or fund that is going down you must either sell out or place an order to get out if it goes down further. Usually 10% is about right. If your stock is $40 place your stop at $36.