Emotional Aspects of Trading/Investing
Hi Marty,
First of all, Thanks a lot for everything.
I have some questions
- What is the best way to get over regrets. Sometimes we sell too early, especially if big size, and then you see it continue doing multiples afterwards, you feel like you missed your chance of the life. What is the best way to cope psychological aspects.
- To perform best, It requires to be a bit contrarian, but also understand the dynamics of the market, in macro level also company level as well. What do you suggest for investors to read to be a better investor. Sometimes I act irrationally, too panicky, with regret and remorse. Emotions are almost enemies of the stock market and I feel there must be ways to tone the emotions
These are great questions that you will be able to answer yourself over time. Trading is a personal journey unique to each and every one of us. Trading will reveal to us who we are and what our objectives are over certain time frames.
It took me a long time to understand the a 50/50 win ratio is all I need to be successful. If we cut losses at 5% and snag a few 25%- 50%-100% winners we will be very successful at this game.
The psychology of selling a stock and watching it trade higher is one that will be handled differently by each trader. If I sell a stock for a 20% profit at $90 and it runs to $110, then I am happy with my 20% gains. However, that early selling just infuriates some people that I know and they buy it back at higher prices. That is just their personality, and YOUR personality is going to play into every trade you make.
I cannot stand to take losses. If a trade is working against me I will sell well before a 5% loss and be OK with that as I know it is part of the game. Some people can tolerate losses and or sitting through a base building process. But, I am not wired that way. You must ask yourself that question; do I want to sit through a base building process while other stocks are performing better?
You mention six and that is a VERY IMPORTANT piece of trading. The price can hurt you but size can kill you. If you are going to be 25%-50% invested in one stock you better have strong conviction in that stock/company. But, you need big size to make big gains. The "no risk, no reward" mantra applies here. in 2023 I had 75% of my portfolio in SMCI and NVDA. It works out well for me. But, I would be lying if I told you it did not keep me awake some nights.
The emotions can be taken out of trading by using technical analysis, and selling stocks at certain technical levels. In this market environment I sell any stock trading below its 21 day line. Of course, I get upset with myself if I make. stupid tad that works against me. But, I forget about it the next day as each day presents us with many opportunities. Do not allow one bad trade to linger. You need to journal each trade and do post analysis on why you bought/sold each stock.
I have include a post-analysis checklist that a friend created a long time ago.
Regards,
Marty
