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So before you start trading in the stock market, you must be prepared to suffer losses like every other trader. This, however, does not mean that making money in stock market is more a matter of luck or chance.
This only means that you should make a thorough search, both fundamental and analytical, about the profitability of the stock before investing in it. Having done that you must be prepared to suffer loss since, as already said, the stock market always remains unpredictable.
You have to develop a mind set which should be prepared to take losses in your stride.
What is the use of developing this kind of mind set?
If you understand that losses are part of the stock trading, you will look at your losses with detachment and equanimity like a good sportsman. You will not be shocked and perturbed. You will not lose your perspective and you will be able to prepare yourself for the next game, next trade with a cool mind.
A disturbed mind cannot react properly. It is likely to misinterpret the graphs and charts of the market trends and draw wrong conclusions.
A constantly nagging fear of suffering another loss in the next trade may prevent a trader from investing which would mean that the loss incurred in the previous trade would not be recouped.
If you have a positive mind set and understand that you have to make money in an inherently mercurial market, you try to be realistic instead of perfectionist in stock trading.
A good trading
Experts in trading psychology believe that it is important to concentrate upon things which you can easily control. You should not try to lose your focus on attending things which you cannot control.
For example, while you cannot control the price trend, you can control your losses by using the stop loss tool effectively. You can understand the concept of support and resistance levels and use them successfully in your trading.
According to Tim Renolds, you should develop three basic strategies to stop your losses. These are price based, time based and indicator based strategies.
In order to use the price based stop loss strategy, you will have ?to make a hypothesis about the trade and identify a low point in that particular stock market.? Having done that, you should ?set your trade entries near your points, thus making sure that losses will not be overly excessive if the hypothesis fails.?
The time based stops involves making optimum use of your time. You should fix up a certain holding period to achieve your target in trading a particular stock. If you cannot achieve your target within that time frame, you should not keep that stock and sell it off.
The indicator based strategy involves understanding market indicators. As an intelligent trader you should become aware of the market indicators and utilize your experience to analyze them to your benefit. The market indicators include volume, advances, declines, new highs and lows and so on.
Experts in stock trading psychology recommend that you should set stops and ?rehearse them mentally?. It will help to ensure that you follow these strategies thoroughly and benefit from them.
Another important point is that you should immune yourself from the influence of mass psychology. It means that you should resist the temptation to do what the majority of stock traders are doing. You must make up your own mind whether or not you have to buy or sell a stock. You can make up your own mind only when you have done your own independent research and do not listen to the secrets and tips offered by your friends and stock market experts.
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