In many cases, we will encounter setbacks when placing orders, such as missing the right timing to enter the market, ignoring the market signal when there are orders, too suspicious to earn that could’ve been earned. Actually, it does not matter if you encounter setbacks, just adjust your mind and get back to the game. The least you should do is to take these setbacks too seriously, making it the end of the world and even affecting your own life.
Some say that those who make money in the investment field are not ordinary people. They really are not. Most of the time, ordinary people let their psychology get the best of them so as to affect their overall performance. Simply put, they usually go through the following stages: hope→fear→greed→despair. These are only human natures. So, today's article is to guide you to better understand which stage is affecting your most seriously when you place an order, and how you should adjust your mentality of operation.
Hope
The mood swings you are facing at this stage will not have a big impact on the entire trading process. It’s natural that everyone gets excited when seeing an entering opportunity, but it is crucial that you stay calm when assessing and analyzing whether it’s the right time to enter repeatedly.
Many people are apt to impulsively place orders when they see their expected entry point and ignore the repeated analysis. However, this small step can easily lead to a fatal loss. During the period from pre-analysis until the K bar is in place, a pattern that is contrary to expectations may be formed, you may also ignore the impact of recent news.
The best example is the gold market on January 3 this year. On that day, the price of gold rose to 1553.3, which is quite close to the high point of 1556.8 in September 2019, then fell backwards. I believe a lot of people went short at this point, because the resistance above is strong, and the gold has risen for so long, it is time to fall back. However, considering the tense relation between the United States and Iran, capital is running back and forth between hedging and investment in fear of an outbreak of conflict, so it is possible that the price of gold might be pulled up. If you put this part of the news into consideration, you will know that it is not suitable to short gold in recent period.
Fear
After seeing the opportunity to enter the market, the first wave of fear will follow. The first major choice for you to make is whether you dare to place an order. As sure as you can be of your analysis, you clearly know that a 100% win rate is impossible. At this point, you will start to review your own success rate in the recent history, how much you will lose if you have to stop loss, or what to do in case of a sudden margin call in sleep, etc., This is the moment when you begin to hesitate whether it is the right timing and let the timing slip away.
These problems can be solved at the same time as long as the cost of each order is controlled within the acceptable range. When this cost is controlled, you don’t need to worry even if you encounter a black swan. After all, the money lost is also under your control.
Greed
When you go with the market for a while and reach the expected stop-profit position, you might continue to hold as you are ungratified. It is possible that the market trend will continue and you can get higher returns, most of the time the situation goes in a contrary direction that you expected, leading you to lose and even stop loss in the end. In this situation, it is easy for you to fall into fear again and start to regret not leaving back the time you profit or at least setting up a protection, and keeps blame yourself.
This is often the hardest to overcome. After all, people stepping into the trading field with the hope that they can make profit and earn as much as they can. To avoid your own greed is a very difficult lesson. Most investors won’t get rid of greed until they face a major loss. Only then will they understand how disastrous greed can be to your trading.
Despair
There are several cases that you might face despair:
- First, you didn’t enter when you should have, leading you to miss the profit you should have earned.
- Second, you didn’t leave when you should have, leading you to lose all your profit and leave with loss of your principal.
- Third, you left the market when you shouldn’t have. You feel unsettled when the market is volatile so you leave early, in the end the market trend continues and you lose the profit that you could have earned.
Each time you place an order, it is just one of many opportunities. If you miss this time, there will still be a next time. There will always be a next time in the market. Unless a nuclear war happens and the world becomes a mess, there will always be investment and you don’t need to care too much about the success or failure of a single order.
Honestly, trading is not an indispensable part of life. Neither losing your family nor wealth should be an expected result. Therefore, I suggest readers take it easy on trading. No matter you profit or loss, life still goes on, doesn’t it?
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