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Stock Market Basics: Trading Psychology for Beginners

The stock market trading journey is not easy. Hopefully this helps newbies and gets them off to a good start.

Know Your Why

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The most important thing is your "why."

Sure, you may be talented, have all the resources you need to succeed and have the best education but without any motivation, you will not achieve much.

What excites you?

Is it the latest Iphone, MacBook or Beats?

Is it getting designer bags, shoes and clothing?

Is it the fastest sports car?

Is it having a large house in a gated community?

Is it being a jetsetter and traveling the world?

Is it helping your community or giving to charity?

Is it donating to your church?

No matter how simple or extravagant it may be, find your why as it will be your motivation to continue during the difficult times.

Not a "Get Rich Quick Scheme"

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Trading or investing is not a get rich quick scheme.

It takes time to learn how to analyze charts and financial reports.

It takes time to adopt a trading system that will make your profitable.

Sure you can buy books, watch videos, attend seminars and enroll in mentorships but putting all this knowledge together is the tricky part.

It takes weeks, months or years of self-discovery before you find the right system for you.

Think of sports athletes like Babe Ruth, Michael Jordan or Tom Brady.

They did not magically wake up and suddenly become great athletes.

It took hours of practicing daily for them to reach where they are.

In the same way, it will take you hours of learning and trading at a regular basis for you to become better.

Tabula Rasa

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Sure you may be an elite athlete, accountant, architect, doctor or businessman.

You may be wealthy, famous or successful.

Remember though that stock trading is a whole different animal. It does not mean that you are successful in one field, you will be successful in the next.

Take for instance Michael Jordan. He is known to many as the greatest basketball player of all time.

Being an elite athlete, surely he will succeed in baseball.

He did not. After a brief fling with baseball, he returned to basketball.

The good part about trading or investing is that it is a skill anyone can learn. You don't have to be tall or athletic or have good genes.

You just have to have an open mind.

Empty your cup of preconceived notions and be open to new knowledge.

Try to learn as much as you can. Watch videos. Listen to audiobooks. Attend seminars.

Try to fill your empty cup with new knowledge.

Patience

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"Good things come to those who wait" is a famous saying that holds true to the world of trading and investing.

Some stock market participants have the ability to wait days, weeks, months and years to harvest what they have sown.

Meanwhile, others have an itchy trigger finger that cannot even wait a few minutes or hours to wait for their stock to move in their favor or to reach the proper support or resistance points.

You will not get anywhere in the stock market without patience.

The lack of patience will make you lose out on a lot of opportunities and profits.

Revenge Trading

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Sometimes you need to control your emotions.

Wins and losses are part of the game.

Some people become emotional losing a big sum in the stock market and try to recoup their losses in a haphazard way. This ironically leads to more losses.

Plan every trade that you do. Plan your entry and exit points.

Do not enter a trade simply because you desperately need to recoup losses from a previous trade.

It's Just a Percentage

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If you have a small trading account things are simple and bearable.

Let us say you have $500 and lose $1 in a trade. What is $1 nowadays? An item from the Dollar Tree?

Things get complicated once your trading account becomes bigger and you get to play with higher stakes.

What if you had a $1,000,000 account and lost $100,000?

That amount is more than what many people earn in a year and you lose it in one trade.

Think percentages and not amounts. $100 is 10% of $1,000 and $100,000 is 10% of $1,000,000. Different amounts but the same percentage.

Know Yourself

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Are you a trader or investor?

If you are a trader, what kind of trader are you?

Are you a scalper, day trader, swing trader or position trader?

A scalper trades for only seconds or minutes. They aim to make small cumulative profits rather than hit home runs. They usually take advantage of leverage in order to magnify their gains.

A day trader also makes many trades within the day. They usually hold a stock for 20 minutes or less or until they reach the desired profit from a stock. The limitation though is that all trades must be closed before the market closes.

A swing trader holds a stock for a few days and takes advantage of medium term price action. He can potentially earn more than a scalper or day trader because of the longer time frame.

A position trader can hold up to years and usually have very large capital as they can weather volatility in the market. They are also the most patient as they can wait for their holdings to bear fruit.

Treat Trading or Investing Like a Business

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Treat trading as a business and not as a hobby.

If you treat it as a business, you will get a business income.

If you treat it as a hobby, you will get a hobby income.

You have to do your homework.

You need to create a trading plan with the proper entry and exit points.

What is your target price and what is your cutloss point?

You also have to read or watch the news, skim through financial statements and review charts.

You also need to sharpen your skills with books, videos and seminars.

Just like any business, you need to pay your dues.

Avoiding Complacency

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A little success tends to make people complacent. That is why it is hard to repeat success.

If you look at any sports team from the NBA, NFL, NHL or MLB, very few teams repeat.

Not only are the seasons long and grueling and the playoffs a war of attrition, but being champion makes a person a little less hungry.

The same goes for trading. Sometimes a string of victories makes you feel invincible and you start going to riskier trades. You start not following things that brought you success such as following your trading plan and proper risk management.

Focus

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During trading hours focus on the charts and stock movements. Also check if any news that may affect the stock comes about.

You cannot be watching television or be playing video games. You need to focus on execution and focus on looking for opportunities that the market may provide.

You cannot be spending your time day dreaming or having your mind wander about.

© 2020 Jan Michael Ong