Visualize and Relax
In the trading business, setbacks are commonplace. The market can be uncooperative at times. Even the best trading plans may fail, and even the most astute trader may face a losing streak. But if you trade for a living, it's difficult to take losses and setbacks in stride. It's easy to feel anxious about uncertainty and possible failure. If you want to take profits out of the markets, though, it's essential that you learn to stay calm and relaxed. Visualization can help you remain at ease and objective during critical moments of investing.
Have you ever tried to recall a name that was on the tip of your tongue? Perhaps it's your favorite recording artist or your favorite book. There are times when you just can't remember. It may be a sign of old age, but usually it's a function of a lack of rehearsal and feelings of anxiety. When you have not practiced an activity over and over, and feel a little pressured, you fail to perform under the strain. This psychological mechanism happens while trading the markets. You may have a clearly specified trading plan, but when it comes time to implement it, you abandon it. You may exit a trade prematurely or hold on to a losing trade. But the mistakes you make usually result from inexperience and feelings of pressure at a key moment.
So how do you gain more experience and control stress? Visualization can help you. Visualization can be used effectively to fine-tune trading skills. This technique is based on the principle that a great deal of learning occurs in your mind. You can use visualization to prepare for a trade before it happens. In your mind, you can play and replay the trade. You can pretend to look at indicators on your screens and interpret the market action. You can experience the thoughts and emotions you'll feel as you wait for a trading plan to come to fruition. A trading mistake often happens when you are caught off-guard. For example, you may not expect the market to behave in a particular way. You may anticipate a continual rise in profits, for example, but during the actual trade, you may unexpectedly see a sharp decline before the price continues to rise. If you are under extreme stress, you may misinterpret the market action and react impulsively.
By using visualization, you can imagine different scenarios and practice how you might react to each one. As you imagine each scenario, you can monitor your internal dialog and identify thoughts that can interfere with your ability to execute your trading plan. For example, if the price dips, you can practice thinking, "I'll just wait a little while longer to see what happens, and if the price doesn't go back up, I'll close the trade." You may imagine a scenario where so much is going on during the trade that you become overly excited. You might practice thinking, "I'll try to stay calm and not over-think it. I'll just mechanically follow my trading plan." Each scenario will bring up different thoughts and emotions, and if left unchecked, these thoughts and emotions may take over when you least expect them. Through visualization, however, you can change your internal dialog so that when these scenarios arise, you'll be prepared to address them decisively.
Don't be caught unprepared. Through visualization, you can run through different trading scenarios and train yourself to act gracefully. The more you can stay relaxed during critical moments of investing, the more you'll be able to stay objective, and trade at your peak.