Controlling Your Excitement

This week’s stock trading question comes from Asif R. whose #1 challenge in this instance was controlling the excitement.

“It was a great day for people who were holding TOL stocks which included me…it really was exciting, or shall I say, too exciting, at least for me. Have you written or talked about how to deal with excitement or taking profits 🙂 and how to go forward from there?”

Firstly congratulations. We got a little lucky, but if you play this game long enough a little luck can come your way. And of course if you play this game long enough the pendulum will swing back the other way – you’ll get a slap across the face from Mr Market.

The same tends to be true with your emotions; the pendulum will swing both ways. If you get amped from a big profit, it usually means you need a dose of antidepressants when you have a string of losses.

We can never be robotic and we can never NOT have emotions, but we can temper the ride to some degree. One of the key reasons why emotions can run rampant is from focusing on a trade in isolation, rather than focusing on the bigger picture. You know my mantra, “Next 1000 Trades”. This is designed as a reminder about the big picture, but also a suggestion that a single trade will neither make you, or break you.

In my experience the best way to stay focused on ‘the next 1000 trades’ is to focus on the process of executing the strategy correctly rather than watching the profit and loss. Over time the emotional attachment to money fades and your trading mind calms to a more even state.