Over the next two weeks I’m going to pass on some of the tougher lessons that I‘ve learnt over the past 20 years.
I’m talking about the kind of lessons that cause all the grief, frustration and disappointment.
These very mistakes may even be killing your chances of getting ahead and achieving what you want.
After all,… Success doesn’t just “happen”. Success is by design.
Here are 2 of my 4 gut busting lessons.
#1 – Plan your trade and trade your plan
We all get sick of hearing about the trading plan, but trust me… your trading plan is your road map for surviving in the markets. Many people will go to the time and effort of writing their trading plan, but then fail to commit to it when the time arises and the opportunity presents itself. They fall victim to their emotions, or the views expressed by some ‘expert’, or a variety of other outside influences and either don’t place a trade, take their profits too early, or fail to take their stops or exits.
Trust me… Not only is it important to document your trading plan, the most critical part is sticking to the rules you have agreed to use. There is little point developing your ‘rules of engagement’ only to ignore them when the game begins.
#2 – Forget about the romance and never fall in love with your stocks
Let me share a story with you…
Early on my journey, I learnt the harsh reality of falling in love with the stocks that I owned. My original bend was reading newsletters, company reports and listening to the so called market wizards about which stocks were about to soar.
I would soak up all information that I could and then convince myself that I was presented with the opportunity of a life time. In some cases I would even picture myself spending the money before I had it.
What I found out a few years later was that I was letting my emotions control my decision making.
I was taking all my biases and opinions into the decision making melting pot and failing because I truly believed I was right!
I must admit, this was an extremely volatile and costly investing period for me and I now know that you don’t have to be right to make money in the market. Actually, you can be wrong more times than right and still make money.
Strange concept isn’t it?
If I have learnt anything over the past 20 years, it is that we all have biased opinions that we need to eliminate if we are to invest successfully.
So you need to let go of what you think will happen in the future and build processes for the now.
These days I have defined how I will exit the trade before I even enter it.
Basic risk management rule #1 – Detach yourself from the trade.