Summary of Trading Psycology presentation by Hans at CAN SLIM meeting August 23, 2012, at “Greg’s Lodge”
Be well-organized, keep desk clean, no clutter.
Be in harmony with your surroundings, maintain good relationships with spouse/partner, family, friends.
Body: eat a healthy, balanced diet, exercise.
Trading is a discipline. Must practice just like learning an instrument or practicing a sport .
Trade with real money as opposed to paper trading. You will learn more quickly.
Have to be in full control of mind and body. Stay objective and neutral.
Our mind instinctively protects us against negative information, against information that leads to losses in our stock positions. So stay open minded and objective to any and all new information.
Develop a trading strategy relative to your assets and time horizon. Write down your rules, and keep them visible. Make sure your rules take account of the time you choose to dedicate to your trading. For example, don’t use CAN SLIM, if you only have 10 minutes/day to dedicate to trading.
Don’t revise rules during the trading day. Only revise rules on weekend and after thorough consideration.
If you are a novice investor, start with a basic investment strategy and as you are successfully implementing it, make your strategy more sophisticated. For example, you can start with $-cost averaging a small portion of your assets into an ETF, such as SPY. The next step could be to be long SPY during a confirmed uptrend and be in cash during a correction. Then you could ad covered call writing to your strategy, start studying CAN SLIM principles, become familiar with option combinations, etc.
Watching the market is not powerful.
Don’t interpret the market, simply observe and act according to your rules.
Have exit strategy before entering a trade.
We see patterns where no patterns are. From an evolutionary point of view, survival point of view, we are conditioned to look for patterns. The natural world has an abundance of patterns. Stock market is an artificial construct and although there are some obvious patterns, they may or may not repeat themselves. Many smart investors are acting on patterns ahead of time and thereby contribute to the elimination or softening of said pattern.
We protect our body by shielding it from harm, we protect our brain by deflecting negative thoughts, negative information. Deny negative information about our stocks. Don’t want to admit we are wrong. As long as we stay in a losing trade, we don’t have to admit that we were wrong.
In real life, hope is powerful, it helps us survive. In the stock market, hope can be deadly, especially if non-diversified, leveraged investments are used. Example, Niederhofer, a celebrated hedge fund manager in the mid 90s, blew up in 98. He relied too much on being confident in his academic abilities and his past track record.