Monday, November 14, 2005

The Difference Between Positive Thinking and Denial

The market requires our very best every day. We have to show up with our game face on, ready to go from the opening bell. Preparation is a necessity and part of trading confidence, but that all happens long before stocks start moving. Once that bell rings, it’s all about execution and having the proper mentality.

Positive thinking has been a hot topic for a long time now. What I do know is that thinking positively is certainly needed for good trading results. Pulling the trigger to initiate a trade is based on confidence, and learning to be a profitable trader begins with preparation and confidence. But on the flip side, stubbornly fighting a losing battle is denial. Where do you draw the line?

When you do your homework and locate good trading setups that fit the current market environment, it’s easier to be confident. You might find trades on your own by screening for chart patterns, or maybe you get your trading list from a stock newsletter like our Bandit Broadcast. Either way, your preparation is part a part of your trading plan which should give you confidence. Developing a stock trading strategy entails knowing where to get into a trade and where to get out, and is also part of a complete trading plan. Having a trading plan for each of your ideas gives you confidence to hit that stock once your trading criteria have been met.

Thinking positively includes not only hitting trades once they trigger, but also being willing to upwardly revise your trading target in a stock with excessive momentum. A profit objective that is met faster than expected may be a signal that you found a big winning stock, allowing you to stay in on the profitable side of the trade for longer than you planned.

Denial is the other, dark side of the coin. Denial is when you blow stops and insist that you’re right on the trade, in spite of your P&L yelling that you are in fact wrong. You’re wrong when your stop loss is triggered, so exit the trade. Your P&L may be a scoreboard as to how well you’re doing, but it also can be your magic 8-ball to tell you whether or not you’re correct on a trade. Accept that you’ll be wrong a good deal of the time, and learn to manage losses appropriately rather than deny that you’re wrong.

Show up each day with your very best. Have a game plan. Know your exits. Think positively, and accept the results.

Jeff White


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