The biggest obstacle to great trading isn't a lack of knowledge about the market. The biggest obstacle is feelings and emotions. Knowing what to do isn't that hard, but doing it and staying confident in our trading process is tremendously difficult.
No matter how successful you are at making money in the market, a very large percentage of your trades or investments will fail. You will go through periods when it seems like you can't do anything right. The market will confound you with its illogical action, and great stocks will be treated like trash for extended periods of time.
Great traders accept and embrace these market peculiarities and find ways to be empowered rather than frustrated when the market is uncooperative. The market is a strange beast, but we can deal with it with the right attitude.
Embrace the Role of Luck
Many traders don't like to admit it, but luck greatly impacts their results. When they make a great prediction or buy a stock at exactly the right time, they attribute it to hard work and skill, but when the market or a stock doesn't do what they think it will, that is just bad luck.
Luck is our constant market companion and will always influence outcomes. The best traders know this, and they focus on managing luck. They manage risk and ensure they are never in a position where bad luck can hurt them too badly. They try to take advantage when Lady Luck smiles at them.
If you catch a great trade, it isn't because you are a genius. It is because you created conditions to be in the right place at the right time. If there is some sudden surprise news that you did not see coming, it isn't because you are an idiot. It is because it is the nature of speculation. The harder you work, then the more good luck you will experience.
What makes dealing with luck even more difficult is that it can be streaky. You are stung by surprise news, and then it happens several more times. It is easy to lose confidence when this happens, but it is the nature of the beast, and we have to recognize it cuts both ways.
Mark to Market
One of the most common mistakes that traders and investors make is that they become emotionally invested in certain stocks. They have traded them or held them for a long time and tend to lose objectivity. By far, the biggest mistake that people make is that they hold on to a stock that is acting poorly, and then they think it is too late to act.
The way that emotionally secure market participants deal with this is that they forget their cost basis. They don't consider all the time and emotion that they have spent on this stock. They look at it with fresh eyes but make a judgment about whether they would buy it right now or not instead of focusing on the big unrealized loss or gain. Focus instead on whether the stock is currently a good buy or not. That will break the inertia and allow you to make better decisions.
Don't Be Dogmatic
Bulls may be right and bears may be right, but it is opportunistic traders that are winners. Traders often become too invested in certain market narratives and have difficulty adjusting when the market doesn't do what they think it should do.
Recent market action has been a very good example of this. There are many high-level strategists that are convinced that the market is going to retest lows before the bear market is over. They were caught in a very painful squeeze and run over by bulls that were focused on price action.
The folks that did best in these market conditions were those that were most focused on taking advantage of actions that may seem irrational. Some pundits would rail against the stupidity of these buyers, but the buyers aren't dumb, they are opportunistic. They are focusing on trading market conditions rather than trying to defend a theory about what the market should do.
The words Bull and Bear are widely used in discussing the market because they are a convenient shorthand, but they shouldn't be your mindset. The mindset of the trader should be one of always looking for an opportunity. Bears and bulls are just the people that are creating the next opportunity.
The Power of Positive Thinking
Great traders are optimistic. That doesn't mean that they think the market is always going to go up. It means that they are confident that there is always another great opportunity coming. They know - without a shadow of a doubt - that if they keep on plugging away, they will find another great trade. They may have some big losers and bad luck along the way, but the great gift of the market is that it will always produce a good opportunity to make money if we persist.
Simply staying aware of the emotions and feelings that are driving your actions can be greatly beneficial. Ask yourself why you are making this buy or sale. Is it because you are feeling fear or greed, or is it because of sound logic and strategy? When I am tempted to dump a stock because I'm annoyed by its action, I have to ask myself if it really has done something wrong or if I am letting my emotions drive my decision-making.
Nothing is more powerful in trading than having the right emotional mindset, but it is very hard work and requires much thought and effort.