Trader Without Emotions
One important revelation new traders must understand when they make the decision to learn the stock market is the necessity to enter and exit transactions without emotion. Too often a new or unseasoned trader – and occasionally one who has been around for a long time – get emotionally involved with their stocks, which can lead to making the wrong choices and eventually lead to losing money.
An individual will too often fall into the trap of becoming emotionally involved with a stock which they choose. It may take a while before they learn, but a trader without emotions is one who will potentially prosper quicker and make more money in the long run. Those who are unable or unwilling to keep their personal feelings in abeyance are more likely to lose their money faster and with extreme prejudice.
Why do otherwise intelligent people fall into this emotional trading trap? There are many reasons that can help explain what happens when rational thinking goes out the window.
They fail to understand how the stock transaction in question could go the wrong way and enter into a state of denial. Perhaps they went to great lengths to analyze the stock and ensure they had considered all the differentials. "There's no way this can happen," they say.
They intellectually refuse to admit they could be incorrect when it comes to assessing a trade. Wrong is not typically a word they use in their vocabulary, whether or not it concerns trading the stock market. This problem comes back to pride; they can't believe they made a mistake that cost them money.
They empower an inanimate object (such as a corporation or a stock) to animate status, and ascribe feelings and emotions to the entity in question. Eventually they learn that these stocks and options don't have feelings and don't carry a personal vendetta against a trader, although it takes longer with some people than with others.
The only way to learn how to become profitable in the market is by becoming a trader without emotions, one who looks only at the numbers found through technical analysis. Individuals who are content to discard their personal feelings are better capable of making a rational decision about whether to enter a trade, when to exit a trade, and when to get out when a transaction has gone the wrong way.
By establishing parameters for a trade, an individual is establishing a formula they will follow, providing a plan to follow regardless of the direction the market takes. A trader without emotion establishes a trading roadmap – similar to a road atlas you would use when taking a cross-country trip – and knows exactly what to do in every potential situation. Following the plan, which has already been established, removes emotions and allows an unfettered path to intelligent decision making. A predetermined plan potentially clears away much of the confusion and permits the trader to base his choices on cold facts instead of hot emotions.
