Stock Exchange Trading: Stock Trading Is Similar To Being A Professional Athlete: 5 Ways To Control Your Emotions
Trading in the stock market is similar to being a professional athlete. Both are judged on their daily performance. You need to cultivate habits to develop your emotional resilience.
This means that wild fluctuations in the stock market shouldn’t make you jittery or nervous. The ups and downs of the stock market are an integral part of the investment journey. You need courage and agility to stay prepared for any directional movement.
It’s easier said than done. Our brains are hardwired to let emotions take control. When we see red piling up in our positions, the “fight or flight” instinct kicks in. This causes gut reactions, which can be costly and prevent us from achieving our goals. So how do you avoid emotions while trading? Here is a preview.
Treat it like a business
I always stress that investors should see themselves as independent entrepreneurs. It requires a radical change of perspective. If you think of investing as a hobby, you won’t be able to quantify your goals. This could make it difficult to achieve lasting progress.
Write a business plan, list your goals, determine your risk profile and the amount you plan to invest. What will be the source of this capital? How much can you afford to lose? Describing these things on a daily basis will keep fear and greed in check. When you treat trading like a business, you are also less likely to make decisions out of boredom.
You should consider putting some time between the momentum to act and your investment decision. This is true whether you want to buy the downside or sell during a rise. Various studies have indicated that breathing exercises can help you stay calm, productive, and rational while dealing with stressful situations. Research further proves that different forms of breathing are associated with different emotions, so the way you breathe can impact how you feel. Changing the rhythm of your breathing can signal relaxation to your brain. This will give you time to reassess your approach to investing.
Market research is crucial
Emotions sometimes creep in when you don’t know what to do in a particular market situation. This is why you need to stay up to date on the fundamentals of the market. Focusing on companies with great quarterly results may not give you the big picture. Understand the underlying macroeconomic factors, both domestic and global. Be aware of all geopolitical developments that can trigger market volatility.
Look for new educational resources, such as analysts’ opinions on undervalued stocks, price predictions, and economic analysis. Improve your research with a new newsletter every now and then. You may find something that fundamentally changes the way you invest, or something that you don’t agree with.
Either way, when you make a concentrated effort to always learn something new about investing or the markets, you will have a new perspective and a new confidence. It makes you a more educated trader and breaks the cycle of emotional trading.
Always remember the past
When the market plunges the next time around, remember it’s not the first and it won’t be the last. Globally, the stock markets have overcome so many obstacles over the decades. For example, Indian stock markets experienced the largest one-day decline in absolute terms on March 12, 2020, as the WHO declared Covid-19 a global pandemic. The benchmark Sensex was down 8.2% to trade at 32,778 points, and Nifty 50 was down 8.3% to trade at 9,590 points. But as of March 15, 2021, Nifty 50 was trading at 14,772.62 points, more than pre-pandemic levels.
The stock market has recovered and reached new highs after each global crisis. Also, keep in mind that even if the stock market goes down, your overall portfolio might not go down. If you have a well-diversified investment portfolio, comprising stocks, bonds, and other assets, your panic can subside considerably.
Ignore background noise
You may have read various buzzwords and phrases in articles or books before. Stick to your trading plan. Have patience and discipline. Be in the area.
They are all logical, perhaps even encouraging. However, unless your mind is at home at home and you are in good mental and physical health, you cannot follow these steps. So, consider a few non-market tips to get your head in, like getting regular exercise, doing something creative in your spare time, reading a book, and more. These things can keep your mind from focusing on the markets.
Finally, accept that mistakes are made by even the best business minds. How to react to these mistakes differentiates a good trader from an excellent one. Learn from them and keep looking ahead.
(The author is Managing Director and CEO, HDFC Securities)