Mind Games While Investing

What you do is important; but how you do, what you do is more important. This is true of an investor who is in the thick of buying and selling the shares. Trading psychology has an important role to play in profitable trading. The decisions taken with equipoise and equanimity of the mind turnout to be mostly correct than the decisions taken under stress.

Mind is nothing but a bundle of thoughts. The bigger and heavier the bundle, intense is the stress for the mind. When you are trading, charged with the desire to grab as much profit as possible, a hundred conflicting thought-currents pass on the curtain of your mind, creating all sorts of confusion. Whether to buy or not to buy a particular share? Whether to sell it or not? Whether to ignore the stop loss order set earlier or to revise it? Unable to cope up with the pressure, you take decisions under duress. You begin to lose in the mind game and suffer monetary losses. Some more losses, and your entire thinking process gets bogged down; you feel helpless and frustrated.

It is quite astonishing that the investors, researchers and analysts spend lots of time trying to solve the mysterious functioning of the share market, but are least bothered about the functioning of their own precious asset-the mind! The issue is simple and straightforward. Every time you do a trade with the motive of profit, at the back of your mind, you have the fear of incurring losses! The unprepared and unsteady mind tenders one excuse or the other to go ahead or not to go ahead with the trades. ‘This should have been done like that,’ ‘I should have done it better,’ ‘something is wrong with the market today,’ etc. But the reality is no one can dictate terms to the market. It has its own style of functioning, and none can challenge it. Co-operation, not conflict needs to be the approach and one should be at ease to move with the direction shown by the market, without questioning why! Your path to the areas of profits is in following the market, not in challenging it.

Psychological hurdles are created when you have to deal with the post-loss period of the day. When some your trades lose, you lose your mental balance as well. You begin to regret, why you did not act in a particular style. Instead of being emotionally-charged, act like an impartial statistician, forget the loss phase and think about the future trades. Your money management needs to be such, that any one trade should not create heavy loss impact on your overall trades.

When your trades flop in a row, you lose confidence and begin to doubt your strategy. Hurried modifications to the strategy will cause more losses. Therefore, stick to your original strategy, which, in all probability will see you through your temporary loss-phase.

When you are lucky, you receive benefits from the trade, without actually deserving it! Be wise to admit that the favorable happenings are not due to your expertise in the share trade! About 80% the new traders, many of them educated and well-versed in the theory aspect of the functioning of the exchange, give up within six months. This happens because they lack the mental toughness required for the trades. Why some others are streets ahead of you and make steady progress? Think! Plan your trades and trade your plan, without making whimsical modifications.

Cognitive psychology indicates that human decision processes are subject to several cognitive illusions. When you think clearly, without the involvement of your emotions, you concentrate on the cash flow of the company, not on the internet shares hogging all the attention, through the advertisement gimmicks of the promoters of such shares.

Warren Buffet puts it succinctly, “Investing is not a game where the guy with the 160 IQ beats the guy with the 130. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.”

The pressure of pain is always more than the pleasure of gain. Avoid the tendency to stick-on to the shares that you consider as the choicest, without the backup of any rational analysis, and plan an intelligent stop loss strategy. Use your mind to make profits, by minding your losses well in time.