As much as we’d like to believe that we, as human beings, are easily capable of purely rational thought, this is rarely the case. The truth is, no matter how much we think we’re making decisions based on facts and logic alone, it’s very difficult to escape the influence of emotion.
This emotional influence is true for small, everyday decisions, such as where to go for lunch, or which weekend vacation destination to visit. However, it’s also true for choices that can impact your life and finances: your trading decisions. Unfortunately, it’s these emotional distractions that cloud your decision-making and can be damaging to your portfolio – if you let them.
These can be inherent emotions that come with making tough financial choices, or they can even be ones manufactured intentionally to create hype around a particular stock. Panic, doubt, uncertainty and confusion have all been the culprits of countless poor trading decisions, both on a personal level that harms individual portfolios, on and widespread levels that have devastated companies and the stock market.
Learning to let go of the emotional attachments and human errors of investing protects you from letting your own biases and “gut feelings” negatively impact your trades. Of course, the emotional influences on trading aren’t all bad. Feelings of confidence and comfort in the decisions you make about your stock portfolio can absolutely lead to smarter trading decisions that can be beneficial. They key is to keep your emotions and instincts from preventing you from trusting yourself to make choices based on logic.
To succeed in the stock market, you have to have a plan in place before you make any moves. When is the right time to buy? What’s the right position size for my account size and risk comfort level? When is the perfect time to sell for maximum profit? These are all decisions that are too crucial to be left to guesses or gut feelings.
The good news is that there are resources out there to help you separate the facts from the feelings. Many traders who have recognized the potentially dangerous influence of emotions on trading have turned to alternative strategies designed to give them numbers and logical influence that they can trust.
For example, a trailing stop order sets a “sell” price of a specified percentage below a stock’s market price. If the market price goes up, the trailing stop goes up with it. But if the market price falls to the trailing stop point, then you exit the position and look for another opportunity to put your hard earned capital to back work. Voila! With the right trailing stop price, there’s no limit to your gains, and your losses are restricted to a maximum that you’re comfortable with.
The trick is to know how to find the right price. Tools like TradeStops are designed to use mathematical formulas to not only keep you from selling your stocks while they are still trending up, but to also ensure that you never let a small loss become an unacceptable loss. With the right tools to give you the information you need to figure out your next smart move, you can eliminate compromising emotions and feel nothing but confidence.
