Editor's note: Don't be your own worst enemy... In an uncertain market, like the one we're in right now, you can't let emotions guide your investment decisions. If you want to protect your wealth amid today's market chaos, you must put together a sound investment plan and stick to it... That's why Greg Diamond – editor of Ten Stock Trader – believes it's crucial for investors to maintain a focused trading mindset... to avoid making knee-jerk decisions. In today's Masters Series, which is based on the September 5, 2023 Weekly Market Outlook issue, Greg details how adopting the mindset of an athlete can enhance your perspective as an investor... shares three key steps for mapping out a sound investment strategy... and discusses how being honest with yourself can pay off huge in the long run...
Your Mindset Can Make or Break Your Trading Career By Greg Diamond, editor, Ten Stock Trader Back in high school, I lived for competitive sports... Growing up in North Carolina, basketball was everything. I played all four years. Our team made it to the playoffs against many athletes who went on to play professionally. While competing against these future pros, "everyone" said we weren't good enough. The best part was, we often proved them wrong. It taught me to ignore the critics... And it convinced me that I could succeed at anything. But that mindset was also critical during the basketball offseason... No matter how much I practiced shooting, dribbling, and passing, there was nothing like competing. So in my junior year, the track and field coach (who had seen me play basketball) advised me to consider hurdles. The races were intense. With a lot of training, I got into great shape and became faster than ever. Most of all, though, running hurdles took my competitive mindset to the next level... You see, the first two hurdles are the most important. You need to perfect the sequence of steps and the speed required to jump over the first hurdle and then prepare for the second. If you jump too soon, you could land in an awkward position and take longer to prepare for the second hurdle. If you jump too late, you risk hitting the hurdle, which could cause you to lose the race. But once you get into a good rhythm across several hurdles, that can guide you the rest of the way. It's a largely individual sport. So the right mindset is more vital than ever... After all, in many ways, you're competing against yourself. In that sense (and others), running hurdles is similar to trading... Strategy, preparation, and discipline are crucial. And as I'll explain today, the techniques that drive success in hurdles can also help you become a better investor...
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One of my first bosses made this same comparison years ago. Given my experience with the sport, the idea that running hurdles is similar to trading resonated with me instantly. Now, trading is a continuous learning experience – it doesn't end at a finish line. But it's still important to clear the first few "hurdles," as they often present some of the toughest challenges. We can do this by building a focused trading mindset. That means applying a sound investment strategy... preparing for different market conditions... and remaining disciplined, time and time again. (This approach also makes it easier to overcome future hurdles.) Here are three specific steps for creating a successful mindset... - Execute a sound trading strategy.
Your strategy must help you determine when to trade, how much to trade, and when to take profits. This formula should also dictate when you'll add or cut a position. - Understand that losing is part of the process.
No trader gets every single trade right. That's why risk management is so important... It helps to preserve your capital and minimize your losses. To do that, you must establish favorable reward-to-risk ratios and use reasonable position sizing. Don't underestimate risk management... These principles can make or break your trading career. - Keep your emotions in check.
We all have emotional responses to the events in our lives. Successful trading requires you to always control them (rather than ignore them). Don't let emotions rule your trading decisions... and don't let trading rule your emotions, either. Effective risk-management principles can help negate emotional responses when things go wrong. Although trading presents many hurdles, these three are probably the most important. Once you overcome them, the rest of the "race" becomes easier to complete... and eventually win. But that takes time... You need to spend time studying market moves and learning how you react to them. Sometimes it's frustrating. Other times, it's pure joy. To put in that time, I recommend writing everything down in a journal. It's a lot of work, and it may sound silly. But hear me out... Every day (and I mean every day), write down the trades you executed. If you didn't trade, write down what you're considering trading or what stocks you already own. Decide exactly what you want to do (or not do) with those positions. Write down whether you followed your investment and risk-management strategies. Also, describe what made you happy or angry in that process. Don't hold anything back. No one else will read this journal, so write down exactly what you think and feel. Be your own worst critic, and be completely honest with yourself. This will help clarify your thought process, emotions, and, ultimately, your relationship with investing. Over time, you'll learn how you respond to both good and bad days in the market. And when you look back, you'll see how much you've grown. Give it a shot for six months and see what you discover. I think you'll find it makes a big difference in honing your trader's mindset. By doing that, we can use behavioral finance (the study of how psychology can impact market outcomes) to our advantage. Few people talk about this aspect of trading, but it's very important. So, let's continue cultivating a strong mindset to overcome the hurdles we're bound to face. And remember, we can do anything we set our minds to... regardless of what anyone else says. Good trading, Greg Diamond, CMT
Editor's note: These simple steps will help you keep your composure for every investment decision you make, which will be especially crucial as we navigate 2024. You see, Greg believes chaos is coming to stocks this year. That's why he just sounded the alarm to reveal an upcoming historic turning point for the markets... Greg recently hosted an online presentation to discuss how this looming financial chaos is opening the door for you to double your money 10 different times, without buying a single stock. Learn more here... | 
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