Stock trading, Emotional trading, Winning traders, Trading success, Trade profitably, Successful trading, Disciplined trading   Stock trading, Emotional trading, Winning traders, Trading success, Trade profitably, Successful trading, Disciplined trading 
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Mind Over Markets

Home > Stock Market Articles > Mind Over Markets

Trading or investing can be so exciting that it often makes amateurs feel high. Nobody can get high and make money at the same time. Emotional trading is your own worst enemy. Greed and fear are bound to destroy any trader or investor. You need to use your own intellect instead of trading on gut feeling. Conquering your emotions of fear and greed will help you on the road to untold riches.

All humans have a natural tendency to follow the crowd, but when trading, following the crowd can often be non-productive. Unless you are trading a trend and there is no resistance, it doesn't work to just conform to the masses. The astute trader knows how to anticipate the trend and makes sure that he or she sells before the trend reverses, and the masses start selling. But your ability to break away from what the masses are doing may have a lot to do with your personality.

There is safety and comfort in numbers. Across the generations, people learned that survival depended on banding together and working as a group. All humans inherited this legacy, and it is shown in the security we feel when we follow the crowd. Consider why fish swim in a school or how cattle travel in herds; there is safety in numbers. It's adaptive most of the time. That said, there are vast individual differences on the extent to which people follow the crowd, with some conforming too much and others conforming too little, but most successful members of society have seen the virtues in following the crowd. They have learned to look for rules to follow and to decide which standards to strive for.

Blind obedience to authority may not be beneficial but compromise is. To be successful, it was vital to protect one's self interests yet also stay within the bounds of acceptable behavior. Although you've been frequently warned about the pitfalls of following the crowd, it's important to acknowledge that it is adaptive most of the time. In the markets, it is sometimes useful to conform. For example, for long term investing, it is wise to put your money in stocks that don't have a great deal of volatility and by all indications, have solid fundamentals that will push the stock up consistently for several years. If a large enough crowd believes strongly that the company will produce profits for decades, it would be to your advantage to follow them, if you want a safe investment.

Although following the crowd isn't bad all the time, there are times when a trader should not follow the crowd. Traders are looking for volatility and a good chance for making a big profit. Most of the time that means going your own way. It requires that one think like a contrarian, where you are trying to guess what the crowd will do next and trying to capitalize on it. The key is to know when to follow the crowd and when to go against it. The crowd is usually right, until a turning point occurs. When virtually everyone has taken the position that the market is headed in a particular direction, there are almost no traders left to push the trend further. At that point, a countertrend initiates and moves the market in the opposite direction.

The challenge is predicting when that turning point will occur, anticipating it, and developing a trading plan to capitalize on it. Now, this all sounds easy in theory, but in practice, it is difficult to implement a trading strategy to capitalize on this cycle. How can one predict the turning point? Some say it is almost impossible. All you can do is develop a sound method that works most of the time but also admit that it may fail. Whether you use technical indicators or you are lucky enough to use the media news to your advantage, you must temporarily believe in your method, put money on the line, and work under the assumption that overall, luck will be in your favor should you make enough trades. (And by all means, control your risk; otherwise you will be the victim of relatively risky trades, rather than the victor.)

Going against the crowd takes a special kind of person, a person who isn't afraid of risk but doesn't seek it out, a person who looks inward only, and doesn't need reassurance from others. One must creatively study the markets and try to devise an innovative trading plan. It takes a great deal of experience and thought, but by using the proper perspective, gaining extensive experience, and honing your trading skills, you can break away from the masses, and trade consistently and profitably.

The human body and mind operate much like a machine in that they need preventative maintenance. Just as you wouldn't drive a car without routinely changing the oil or checking the tire pressure, you shouldn't over-stress your mind or body without taking a rest so as to allow yourself to rejuvenate. Trading is a stressful business. Traders continually must cope with uncertainty and endless setbacks, and these factors tax the mind and body to the point that they can no longer function efficiently. Make sure you do preventive psychological maintenance so that you can always trade in a peak performance state.

Trading is intrinsically motivating. It's fun and exciting, but any activity can become boring and tedious if you have to do it over and over again, and do it quickly and under pressure. Trading is fun when you first start, and if you trade as a hobby, but the professional winning trader must persist under less than ideal conditions. Many times a trader must make trade after trade to allow the law of averages to work in his or her favor. The search for winning trading strategies is endless and a challenge. Even the most passionate trader eventually finds trading stressful and tedious. The long-term ramifications of a tedious and anxiety provoking profession can be severe. The mind and body have limited resources, and when these resources are depleted, one cannot continue to function efficiently. Eventually, one needs to take a rest and allow mental and physical abilities to recuperate.

In the long term, it is vital that you take vacations from trading. If you trade month after month without a break, you'll get burned out, and the activity you are passionate about will turn into something that you hate. By taking a vacation, you'll not only get some important rest and relaxation, but you will get a new perspective. You'll see trading in a new light and remember why you like trading so much. When you return, you'll trade with renewed vigor and that will help you trade efficiently over the long haul.

Winning traders execute and monitor their trades while in a peak performance mindset, a mindset where one is calm, logical, and determined. When you are stressed out and worn out, however, you can't cultivate this mindset. It is vital to take rests so that your mind and body can rejuvenate. By doing preventative maintenance, you can trade with a mindset that ensures consistent profitability.

This article may be re-published as long as the following resource box is included at the end of the article and as long as you link to the URL mentioned in the resource box:

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