Thursday, March 20, 2014

Emotions & Ways to Override them

Lately, i met so many traders who expressed their grief about losing out on the rally from 6130 to 6530 in almost one straight line. They said they didn't expect this, or couldn't take the step they so much wanted to, or couldn't believe what their eyes saw on screen, and eventually lost out on 'the trade' of 2014, so far. And now they crib while markets rest.

All of us trade to ride the best trades, and still miss out on something so very visible on the screens in front of our eyes. Why?

Emotions: One of the most important determinants of our trades.
When it comes to money, our emotions often cause us to take stupid, self-destructive actions.

The late Benjamin Graham — erudite classicist, mentor to Warren Buffet, highly successful investor and probably the greatest financial mind of the 20th century — said it best: “The investor’s chief problem — and even his worst enemy — is likely to be himself.”

So, how to deal with our emotions?
There are many ways, that we keep discussing directly or indirectly.
But right now, i want to focus on just 2 of them:
1. Develop a system based trading style. This would help overrule our emotions and execute what is told by the system. But this again demands immense discipline as always, and
2. (More Important) It is always better to have someone else punching the orders. This will help you to follow they path you should follow, not letting emotions bias you while you are punching your orders yourselves. All you have to do is see if orders are punched properly and in time.

Believe me, this simple looking rule works wonders.

3 comments:

manmohan said...

Very well said Kirtan. Trading is all about emotion and discipline. And traders have to continuously learn how to control emotion and be disciplined. But, I dnt agree with your second point about punching your order on behalf of someone. This is not so relevant. This might be matter to new traders who just started trading but in long run this wont matter. Many times prices movement at screen tell you much more thing than any charts.

KB said...

Both these are very helpful ways in this immensely complex problem. It creeps out in a different color and manner, each time at its best in defeating traders with our own self. I will be watching this space for more suggestions.

KB said...

Both these are very helpful ways in this immensely complex problem. It creeps out in a different color and manner, each time at its best in defeating traders with our own self. I will be watching this space for more suggestions.