Staying On Top
The markets may be reaching new highs these days, but not everyone is able to profit from these conditions. Take Stan, for instance. On Monday, he was down $1,000. He thinks, "I can't lose $1,000 when the market reaches new highs almost every day. People are making a killing these days. I've just got to make that money back and get ahead today." Stan continued to trade even though he was off his game. With the record highs he has been hearing about day after day, he could not let himself give up. He put extra pressure on himself to make back what he had lost and in the back of his mind, he told himself, "With opportunities like these, I should be making a killing." But continuing to trade while putting extra pressure on himself to perform didn't help. He kept losing. In hindsight, Stan looked at how much he had lost and realized too late that he would have been better off if he had just stood aside, rested, and regained
his composure before continuing to trade.
Does Stan's story sound familiar? Many traders are afraid to accept their limitations. Rather than face the fact that they are just not in the proper state of mind, they continue to trade and pay a high price. During times like these, many traders feel that they can't lose, but instead, they end up making mistakes and losing. No matter how good the markets seems, it is vital that you monitor your mood, mindset, and skill level every minute of the day. If any of these factors are off, take a break. It's vital for success to monitor your general mood and your specific emotions. When you aren't feeling up to par, stop trading until you regain your composure.
Systematically monitoring your mood is essential. Rate your mood before the markets open on a 1-10 point scale, ranging from out of sorts, pessimistic (1) to full of energy, optimistic (10). If you take an honest look at your mood and do not achieve a score of at least 7, you may want to take the day off. There is no point in trading the markets when you are stressed out or feeling out of it. New market highs will do you no good if you are not ready to trade. It is better to stand aside and rest, relax, and regain your physical and emotional strength before returning to the markets.
It may not be a good idea to trade in a pessimistic mood, but trading in an overly enthusiastic, overconfident mood isn't a good idea either. When you see new market highs for the past two weeks, it's tempting to feel overly optimistic. Getting a swelled head, though, often interferes with maintaining a realistic, detached and focused mindset. It's important to stay calm, objective, and unemotional, but getting overconfident is not going to help matters. When you see market opportunities that haven't been present in months, it's easy to erroneously start to think you are invincible and can do no wrong. Overconfidence, however, usually leads to trading mistakes that may spell doom. It is essential to stay realistic while trading.
It is also vital to stay calm and at ease. Don't push yourself too far. When you feel pressured, you'll tend to make trading errors. If, on the other hand, you try to achieve realistic standards, you'll feel more relaxed. Ironically, if you strive for goals that are consistent your skill level, you'll meet these goals, and in all likelihood, you'll exceed your expectations. By respecting your comfort zone, you'll feel more at ease and make more profits. It's hard to stay on top of your game, but if you trade in the proper state of mind, you will achieve lasting success.
