Purna Singh Karki
These statements are very common in the Nepalese investment community. Do you have any idea why this is happening?
This situation occurs when a trader struggles to manage his psychology according to the ups and downs of the market. As we all know, the market moves in its direction and no individual has control over it. If that is the case, what can an investor do about it?
An investor or trader should know how to manage his psychology. When we buy the stock either the stock will go up, down, or sideways. That is all it can do. Are we ready for all these moves of the stock? Normally when it goes up there is no problem. But what if the stock goes down? Have you set up your stop loss at a certain level? The stock market is a game of probability so the trader needs to be ready for all these probabilities of the market. Uncertainty is the key feature of the stock market so every investors or trader have to prepare himself to deal with it.
Many short-term traders turn to long-term investors when their short-term trade goes down. This is just an excuse to not admit that their strategy failed. What about you? If are making the same excuses, maybe it is time for you to work on your psychology.
Even if the stock goes up, the trader is not sure when to take the profit. Sometimes a trader waits too long and the profit turns into a loss. Sometimes he takes profit too early and the stock gains 100% or more after he sells. You must have felt it. A profit you missed from so close is as painful as a loss.
I think this problem occurs for two reasons: first, the trader does not know what type of trader he is. Is he a long-term investor or a short-term trader? If a person doesn't define himself clearly, he will be caught on indecisiveness. Indecisiveness will affect his decision-making ability and many problems are seen in the trades. Should I buy it? Should I sell? Should I hold? I should not have sold it, and countless other thoughts pollute the mind of an inconsistent investor.
Second, the trader spends a lot of time researching what to buy and when to buy but he spends very little time to determine when to sell the stock. Selling is as important as buying the stock. Your profit is only imaginary until you sell stocks. One way to learn when to sell is to read books that teach a complete strategy from screening for promising stocks to keeping a stop loss and a profit target. Keeping a trading journal also helps. If we keep all recordings of our trades (why we bought and why we sold) and if we analyze the reasons behind every trade, we may able to find how we are making decisions and where we went wrong. Are we improving or are we making the same mistakes repeatedly?
Hence, the psychology of a trader is vital to make the trader profitable. I want to end the article with a quotation from Mark Douglas who has highlighted the importance of psychology in his book "Trading in the Zone". He warns, "If the market's behavior seems mysterious to you, it's because your own behavior is mysterious and unmanageable. You can't really determine what the market is likely to do next when you don't even know what you'll do next. The one thing you can control is yourself." He adds, "The traders who can make money consistently. . . approach trading from the perspective of a mental discipline."
Purna Singh Karki