November 9, 2020

Why Staying Calm Gives You An Edge Trading

Why Staying Calm Gives You An Edge Trading

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Panic and stress love company. Staying calm when other traders and investors are emotional gives you an edge trading. 

When they’re making mistakes you are making good trading decisions. When they are panicking into a chart rising fast you are locking in profits, when they are getting stopped out lower you are getting in at just the right time. 

Calmness is making the logical, rational, reasonable and efficient decisions and not the emotionally driven errors in the markets. 

If you are alone trading your system in quiet most of the time it is a simple unemotional process if you are keeping your position sizing right. However, if a trader or investor is watching financial news media discussing how markets are in turmoil and reading perma-bear blogs explaining why the economy and monetary system is near collapse then that can cause panic and allow your imagination to run wild of how bad things could happen. The more people panicking the greater the market impact and sell off. 

Staying calm and taking signals is an edge. Starting to create a biased narrative due to fear and panic of what will happen and being locked in to those ideas is very dangerous as it can put you on the wrong side of a trend for days and weeks or more. 

Calmness lowers emotional volume and panic turns up feelings so loud in your mind it is hard to hear your trading plan, much less follow it. Position sizing is another dial on your emotions and ego, you should never trade so big it takes away your peace of mind and your clarity of thought about a trade. 

Your trading should feel more like running a business like a manager than a gambler’s trip to a casino. Your system development should feel like a trip to the quiet of a library and trading your system should be like testing your theories with an open mind. 

Financial news and all media’s ultimate goal is to drive traffic for advertiser revenue. Boring news doesn’t bring interest and eyeballs like panic and fear. Calm is boring and chaos makes people curious. Talking heads can’t even predict the future of their own careers much less the market price action in days, weeks, and months. Things that don’t help you create good risk/reward ratios in your trading are noise, tune them out.

Other people’s trades and investments are noise, your system must be your own signals and they must have a quantified edge. Your ability to follow a profitable trading system during a market panic is an edge in itself. 

Panic is unhelpful in the markets while staying calm is and edge with returns on your mental capital. 

When it comes time to make entry and exit decisions focus on your trading system not the news, or social media, or other people. 

Turn off financial news, mute the perma-bears, and stock pumpers. Do your own historical research instead. Listen to the charts and follow the trend, that is the path of least resistance. 

News, politics, opinions, predictions, and egos are a trap when it comes to trading. Focus on the charts, the price action, and most of all, just stay calm and carry on. Allow a calm mind to be an edge trading.