On Thursday, tech stocks took a dive. Mark lost $5000 on his AAPL position alone. It’s Friday morning, but he still feels guilty. He can’t get the losses out of his mind. He has been trying to scan through a series of charts, but his heart isn’t in it. He has seen a few possible setups, but when he tried to execute a trade, he flinched. All he can think about is the losses he mounted yesterday. He feels afraid as he thinks about the money he could lose today if he isn’t careful. When you trade the markets, however, you can’t be fazed by setbacks. You have to trade calmly, objectively, and decisively.
It’s difficult to be objective when you have lost a significant amount of capital. It’s human nature to feel disappointed after a loss. But if you want to trade profitably, you can’t let it bother you. Somehow you have to truly believe it doesn’t matter. Several steps can be taken to trade more objectively. You can trade with money you can afford to lose so that losing won’t hurt as much. You can also make smaller trades with tight stops to minimize the amount of money you will lose.
In the end, however, you must find a way to make the whole trading experience impersonal. When it isn’t personal and just business, you trade more freely, creatively, and decisively. The best way to stay free and objective is to ground your identity in an alternative reality. Trading should not be viewed as your reason for living. It is merely a profession. If you make it your reason for living, you will have your ego on the line along with your money, and the extra psychological pressure placed on you can make you buckle. If you ground your identity in another source, though, you will be able to take trading setbacks in stride. You won’t be stressed by trading. You will feel free and be able to analyze the markets objectively and act decisively.
Trading, in the end, should just be business. Don’t let it define your identity. Your identity should be grounded in other areas: your family, your friends, or the leisurely pursuits you find most important. If you have a solid foundation outside of the trading realm, the events that occur during the trading day will have little impact on your identity. You’ll feel calmer, and take stresses and setbacks in stride. Why should you take it seriously? If you ground your identity in other areas, losses, setbacks, and the uncertainty of the markets can’t hurt you. You’ll be free to trade the markets with a creative spirit that will eventually ensure long-term profitability.