February 16, 2013

Stock Trading vs. Gambling

You can have all the resources, tools, knowledge and experience at your disposal, but if you cannot get a grip on your emotions, most likely you won’t do very well in the stock market. Active participation on a daily basis can wear and tear on your nerves, especially in the NASDAQ Level II market where there is considerably more risk. You must learn to manage your own psychological reactions to risks, winning, loosing and continuous temptations. Controlling your emotions in an illogical manner isn't something you learn over night. Emotions are natural reactions to other stimulus in our lives. For example, if someone pulls a gun on you, your first inclination might be fear, panic, holding your hands up, yelling “don’t shoot”, and possibly all of those things. It’s natural to feel that way.

You are not likely to say something such as, “Hold on a minute. I need a good cup of coffee first.” That would be a calm, unworried response. When you’ve lost thousands of dollars you have invested, the last thing you want to do is remain calm, unworried, and run home to tell your spouse the not so lucky news. Your first inclination might be to get it back as quickly as possible, which leads people into unwarranted, rash decisions that could possibly turn out to be even worse. Get a grip. Be patient. Weigh the possible outcome risks with your next available choices. Don’t make a bad or unlucky decision create a domino effect of other misguided choices. If the temptation to do something quickly is still floating among your brain cells, get away from the stock market. Take a break until you feel more relaxed and level headed, even if it takes several days. Do not make another move until your emotions are in check.

Nearly 80% of people who attempt this industry fail and quit. They either can’t handle the stress, trade with their life savings, or they make several bad decisions out of ignorance or blind emotion. The first step is to recognize the limitations and tolerance while taking the risk and then accepting the possible results of the risk. This is easier to do if you are trading with a stash of money you have set aside specifically for this purpose. However, if you are trading with your life savings, bill money or your retirement money, the outcome of losing it would be much worse than losing money you don’t need to live on. This greatly increases your emotional stresses, thereby, greatly increasing your chances of making the wrong decisions and losing it anyway.


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