Posted by Bryan Leighton Thursday, June 30, 2016, 01:55PM ET
Read 431 times
What defines or creates the divide between the successful and the average person? To me its obvious, so blatantly obvious in-fact, and I have learned this from over a decade of trading stocks and watching thousands upon thousands of people from all over the world, from all walks of life react the same way in times of emotional "distress" or when facing challenges.
Imagine this, you have perfect/clear reasoning, with a minimum of three supporting factors as to why a trade "should" work out the way you expect (using the PPT Methodology for a proven strategy example). And its time, you enter the trade based on these supporting factors. Now, you anticipated this trade to be a multiple week hold to reach target. But it's summer, that typically means the market is slow, so your trade is taking longer than anticipated. Also, in that time the trade is slowly going against you. Ok folks, it's time... let the emotions start to creep in!! Just like that, you start to question your initial reasoning for entering the trade (fear). You start to hear people on TV taking the opposite side of the trade. You hear others talking, influencing you, pulling you away from your clear minded vision - YOU now start to question your own thought process and cognitive reasoning you expressed when initially entering the trade with a relatively clear mind.
I can place a bet with 100% certainty that every one of you traders reading this has sold a trade for a loss, for it to rip in your direction immediately after, or took a profit "too soon" as it seemed (greed). Now, either of those situations could be perfectly justified if your reasoning was invalidated; so you exit for a loss, or where you take profits. But the point here is this; the majority of mistakes in trading are caused by you and your ability (or lack there of) to control your emotions. If you have a strategy that works and is proven over time, then you must act like a machine, like a robot. Stick to your plan, do not let outside influences get in your head, blurring your reasoning. The more you do that, the closer you are to being another trading statistic.
Take this thought for example, looking at some of the most successful people in history, even those who built this country and changed life as we know it. Most, if not all of these people were first met with a wall of challenges, combined with overwhelming nay sayers and doubters of their pursuits. But did that stop them? I think you know the answer. They stuck to their beliefs and continued on their path in the face of adversity. Surely they took some losses, had some failures, that is natural. The hard part is knowing when to exit, recognizing when your reasoning was invalidated, cutting losses and continuing on to the next. Then stepping back up with that knowledge of what caused the loss, learning from it and moving on to the next. The way this relates to the markets is clear, if the vast majority of people seem to be biased on one side of the trade, or you hear people making emotionally based statements ("This move will never end." "The markets will never go up/down") the best and often hardest thing to do will be to take the opposite side of the trade. However, recognizing that and having the strength in yourself to stand strong against the tide, that is what will place you ahead of the crowd when the tide turns. That is how wealth is made. Look at one of the most successful Hedge Fund managers in history, James Simons, in this video he says that he "does not pick stocks" instead he lets the computers do the picking. Now, while we are humans, the point that we can take from this billionaire is that we need to act as computer like as possible, eliminating as much emotion as possible to truly be successful in the markets.
I leave you with one final, real life example of how I recently watched this play out, recognized it, and made over 100k from it in a week...
As InTheMoneyStocks members were made aware, Gareth and Nick (Chief Market Strategists of ITMS) alerted everyone to enter a number of positions through April and May. Far too many inexperienced investors expect every trade to work out right when you buy, as if it was that easy. In reality, many trades will go against you before they go your direction. As long as your reasoning for entering the trade is not invalidated and you did not over leverage yourself on any one position in particular, nothing has changed and you do what experienced traders do... wait patiently.
Now lets go back to how I made $100k during this same time... as time passed and the trades were still lingering in this "purgatory," I watched as the inexperienced traders/investors began to emerge. Comments on every social media, Traders Life (the InTheMoneyStocks members forum) and other venues that provide people with a sounding board to voice their emotions flowed.
At this point I started to salivate. Like a lion stalking his prey, like an excited child on Christmas morning... I knew I was going to make a lot of money!!
I write this for you now, on the later side of June 2016, just about a week after the SPY (S&P ETF) dropped about 6 points in a week and personally closing 11 positions for large profits. I could have simply summed this article to one sentence...
"I made over 100k in 2 months because I simply recognized the disparity is cognitive reasoning and emotion."
Folks, as simple as it sounds, there is a reason so many people fail in trading, why so many people never achieve things they want in life, why the market takes so many people's money every day; they dismiss the importance of having control of their emotions, fear and greed. They lose that control, or never obtain it, that causes all cognitive reasoning to exit the picture... rending you no more than a gambler as opposed to a trader with the odds in your favor.
When you can develop that personal control and apply it to a strategy that works, I can promise you that massive monetary wealth will be in your future. I did it, so can you. I experienced this "emotional" market environment multiple times through the past decade, I am a living breathing example of how you can do the same thing. But the moment you think it's easy or does not require massive interpersonal effort and strength, that's the moment you fail. Commit now to not being the sheep, separate yourself from the pack and stick to it! Apply this to everything you do and your life will change dramatically.