A Stock Traders Biggest Issue: Controlling Emotion.
Investors and stock traders have one thing in common. They are ruled by emotion. Emotion makes investors and stock traders lose more money than any other thing. Investors and traders try and control their emotion but usually give in at the worst point. For example, I have seen stock investors watch a stock spike 50% in 3 days only to jump in on the 4th day, just as the stock puts in a top and collapses back down. I have seen stock traders buy hold a stock as it collapses 50% only to dump it just as it bottoms out on heavy volume.
So how do investors and stock traders mitigate this issue? There are a few different ways. The first is to ignore the media. Reading articles and listening/watching the financial news will play into your emotional response. Their whole point is to sell advertising. The more emotion they can get from an investor or trader, the more that investor or trader will tune and a CNBC can sell more commercial air time. It is all about ratings, not facts! Another big issue is letting emotion take control and ignoring facts. Using technical analysis is amazing. Every investor can learn it and it allows an investor or trader to see specific levels and not get whipped out of the trade. When a stock falls 50% in a few days and an emotional trader or investor is about to sell in panic, a technical investor or trader may see the capitulation volume or the double bottom on the chart. Same thing on chasing a stock sharply higher. Learning the technical signals allows an investor or stock trader to avoid chasing as they see the myriad of overbought signals.
Emotion is the death of many investor accounts. Learning to read the charts will help control emotion. The other thing that helps control emotion is years of trading. The more time you spend immersed in trading and stock charts, the more you get to see how stocks behave. The bottom line is that emotion needs to be controlled to profit in the stock market. Work at it and profits can multiply many times over.
Gareth Soloway
Chief Market Strategist
InTheMoneyStocks.com
AI
