A reader recently posed a question about getting past the mental barrier of not being able to actually place a trade. Paraphrased, the issue is something like this....the trade signal has been given (via a chart system or some from of fundamental analysis), entry and exit prices have been set, and all that's left to do is make the phone call to your broker, or hit "enter" on your computer keyboard. But at this point, all the doubt and second-guessing comes to a head, and the trade never gets placed. Sound familiar? It's probably the most common heartache faced by traders, and is only compounded when it turns out that it would have been a great trade. This is a tough issue, and unfortunately there is no magical answer. However, we do have some tools that will help you work past the problem.
OK, we're assuming that you do indeed have a proven system and found a trading opportunity that fits your criteria. Great. The next step is to actually place the trade. As all of you know, this is much easier said than done. Suddenly you become very good at second guessing, and you find a few dozen reasons not to enter the trade after all.
Do any of these words ring a bell with you? (I bet they all do).
- "My signal says one thing, but this other indicator says another."
- "There's absolutely no reason this stock should move that direction."
- "What if I'm wrong? What are the consequences?"
These are tough things to deal with. Uncertainty and regret are powerful emotions that can weaken even the best of traders. The things you have to remember are as follows:
- At no point in time will all signals be in agreement. That's just the nature of technical analysis.
- The obvious or logical trade is not always the profitable trade. Sometimes the market is transparent, and sometimes its true nature is completely hidden. All actions in the market happen for a reason. We may not always understand the cause, nor do we need to.
- You're going to occasionally be wrong, so get used to that. Even your tested and proven trading system was not perfectly accurate. As for the consequences of being wrong, that's what stop-limits are for.
The next time you think or say these phrases that might convince you to not enter a trade, I encourage you to actually respond to yourself as specifically as possible, like this:
- "My signal says one thing, but this indicator says another. However, my trading system has a proven success rate over time, and not all indicators will be accurate at all times. So, I will enter this trade based on the success rate of my trading system that I personally constructed."
- "There's absolutely no reason this stock should move in that direction. However, there was no real reason that tech stocks should have made triple digit gains in 1999, and yet it happened. I have to trade what the market is doing rather than what I think it should be doing, even if the reason is not clear."
- "What if I'm wrong? What are the consequences? Then again, what if I'm right? What are the results if this trade is successful."
Pulling the trigger may be the toughest thing to do, but it's also the whole point of trading. It's better to take action, succeed, fail, and learn, than it is to sit back and let the market pass you by.
Price Headley is the founder and chief analyst of BigTrends.com.