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Today I'd like to cover the six common inner game stock trading problems or mistakes.
There're some things you need to be aware of when you're looking at being a successful trader. Some of it is the outer game which is external to you.
When I say external I mean:
- learning about charts
- learning about fundamentals
- reading the balance sheet
- making the trading decisions
But then there's also an inner game - the psychological stuff like this:
- being disciplined
- staying true to your rules
- following your plan
That's all internal stuff, and that's what we're going to cover right now.
There's a lot of things that people don't understand or are not aware of that it takes both parts. You have to have the outer game and the inner game to be successful.
Great example: Imagine Michael Jordan. You know he played fantastic basketball. But if he missed the shot and if he was just broken down and sad and upset you know what would have happened to his basketball career. He probably wouldn't have had one.
Having both - the external or the outer game and the inner game is critical. Let's take a look at mistakes I have on my mind and want to share with you.
Mistake #1 - Having a Short-Term Perspective
This is a huge problem as far as trading goes. We see things from the shorter term. Because when you see things from a shorter term perspective, you only see it very close to your face.
You see it in micro-movements on the charts. You're trying to trade very quickly, and you don't see the bigger picture. You don't know how to execute that trade and hold on to it. You don't have the patient and discipline.
What you're doing is looking at things to make a quick dollar. That's that inner game that's playing against you. Yeah, I want to make quick bucks. Yeah, I want to compound my money, or I don't want to hold it for an extended period.
Because there's an overnight risk, but that's just seeing things from the shorter perspective. Look at the bigger picture - How do you grow a business in the long term?
You want repeatable customers. You want repeatable successful trade. The longer-term seeing is when you can allow a stock to run for weeks, months or years. You pretty much don't even have to trade. You can sit on that trade and will enable it to run.
Look at some of the most successful investors and traders. Are they the ones hopping in and out every single day? No, they're usually the ones being more patient like Warren Buffett sitting on those trades allowing them to work and run for you.
Don't look at things from that shorter-term perspective. Look at the bigger longer-term view. What's going to happen and if you're looking at what's going to happen next week, month, a year, five years, ten years, 20 years. Stretch your mind.
The more that you can stretch this perspective the better you'll be able to see the future. That's what it allows you to do. And with your investing, that's what it comes down to.
Mistake #2 - Societal Programming
I love talking about the programming that happened from us from society because this plays a huge role in many traders lives.
You start looking at the world around us. I remember that when you used to attend a dinner, you focus on that other person. Nowadays, many people as they attend dinners they're on their cell phone or texting with other people. They're having all this micro time with a lot of other people. But it's not that true one-on-one connection.
And this slowly creates a programming effect in you as well. As you choose trades, you want quick trades. You want to trade quickly — the short term. As you start getting into trades, the social media aspect of it also starts rubbing off on you. Which trades should you go into? What should I do, or don't do?
All these things start to create this programming mindset. And not to mention you also get that subliminal effect from all these sources. You also get the programming that had happened to you when you were younger.
If your parents were talking about stock trading and investors like they were crooks or that's gambling. No, that's usually because they don't understand what's going on underneath the surface. But all these words could have a massive impact on you.
That means as you approach trades it may be a very negative way that you're starting to look at trades and investing. That's the case because of the programming that has taken place.
Mistake #3 - Wearing Rose-Colored Glasses
If you've never heard this term before pay attention. It's like putting on glasses over your face, and now all of a sudden everything is beautiful.
By the way, these glasses block out the light here on the screens. That way it keeps your eye safe. If you look at things now with these rose-colored glasses and you start evaluating ideas, and you believe everything that said. It doesn't matter who is telling the words: the CEO, analyst who goes on TV, people on the social media network. What is the thing is you start believing these things?
When you're wearing those rose-colored glasses that everything is excellent and beautiful. The market is unique, it's always going to go up forever. And probably you have not experienced a bearish market. You probably have a suffered significant loss.
You may be doing well for five years, ten years. It could be a 20-year bull market. I don't know how the market is going to behave. But eventually, those things to catch up to you. And it can be a very problematic situation when it comes to your investing.
If you don't understand this and you're wearing rose-colored glasses then be careful of the ride that's going to come. It's a huge mistake that many traders make because they believe that everything's fine.
The fact is that stock prices do go up. And most of the time the government and the world is trying to make things in the world a better place to live.
The reality is that once panic and chaos sets in your emotions start to tumble. If you're looking at your account from a $500,000 account now, it's a $20,000 account those emotions can be severe.
It can cause you to get out of trades a lot sooner than you should. Or make the wrong trading decision. Don't always be naive to things and believing that everything's great or thinking what somebody says on TV.
A lot of times those TV or news analysts they might be saying you to get in this stock. The reason they tell you is that they're looking to dump the shares to you. Because they're trying to get out of the position and they have a significant position.
It's crucial that you're not naive to believe everything that is being said, including what I mean. Do your research, do your homework, figure out what's right for you. And make your own trading decisions.
Mistake #4 - Emotionally Tied to a Stock
This is one of the most common inner game problems that I see with traders. This often happens when you have a famous company. Something like an Apple, a GoPro, Netflix or Twitter. It might be a Snapchat a Twilio. People get too tied to their personal lives.
You get tied to other companies just because you're using those company's products. You've connected to those companies. Whereas for me, when I'm looking at a stock or an investment, I don't care if they make a fancy phone.
I don't care if they make a fancy screwdriver, or they sell a toilet paper. It doesn't matter to me. What I care about is the movement of that stock. I care about how reliable is that stock. Is it a good investment? Is it going to behave the way that I want it to? Is that a healthy behavior? Does it have the price action and the volume behind it to support it? How's it holding up?
That's what I care about. I care about looking at the stocks that are going to move the fastest in the shortest amount of time. Are they strong? Are they leading? Are they a leading company or a leader in the marketplace/
Because that's what you want, you want stocks that are going to move the fastest and the shortest amount of time. And don't forget superior stability if things go wrong. If you're tied to a stock emotionally and it starts to go against you, this is the wrong thought process.
You will think: I don't want to sell; I love their product. Oh, it's just so good, and then you start using their product on a day to day basis. Well, I'm losing about $5,000 on the investment, but I still think it'll be fine.
And eventually, it goes lower, and you still start negotiating with yourself. And then finally goes much lower and you always negotiate with yourself. You'll do this up until the point where you say I can't handle this anymore. I need to get out of it and then finally it starts reversing. It's an exciting way that things play on our psychology. But that's the way it happens.
That's the thing because you're initially emotionally tied to that stock negotiating with yourself.
Mistake #5 - Lack of Patience
It happens in part due to societal programming as we've discussed before. A lot of things in society these days are looked at from a micro view. We're looking at short-term, quick, microwave society. Everything is fast. You wanted it yesterday, and we are trained to build our social muscle our focus muscle. We aren't taught to develop our patience.
We're looking for the quick approach. We're not staring at the crock-pot, the slow cooker way. Investing it's about slow cooking. It's about doing it for years on years consistently. Well, that's doing it years on years making trades month after month, week after week, but it's doing it for the long haul.
For many people, they don't have the patience. That's because they don't have a stretched focus muscle. Their focus is maybe attention span 3-5-7 minutes. We're on social media, check out lines, and all these things do not help our patients.
As you're looking to get into a trade, it's probably going to impact you from that programming that happened. If you don't have the patience to be in the trade, get in the trade or wait for a trade setup it's going to be a big problem.
One of the first main issues is choosing a trade. You have to do your research. You have to be patient to select the right stock. Sometimes it takes a couple of days to find the right investment vehicles. If you're good, if you're not very good at it may take you a few months.
Then when you get into that trade, it's not going to explode right away to the moon the second you push the buy button. You have to be patient. Allow that stock to pick up more movement and momentum. Sometimes it takes a few minutes. Sometimes it takes a few hours. Maybe it takes a few days or a week.
Again, be patient. You're letting things work for you. And even if it starts moving, it won't explode right away in a few days. That acceleration takes place, and you have to make profits.
Be patient to allow it to run and work for you. This is a part of trading and investing. Many people don't have it because they haven't worked at stretching their focus muscle. They haven't trained their patience.
If you can do that in your day to day life, you'll probably be able to do it in investing.
Mistake #6 - Not Investing in Yourself
Finally, this is the last one. Probably one of the other big problem that many people and many traders make.
When you don't invest in yourself, you're not growing. You're not evolving. Buy yourself a book, buy yourself a video course. You don't have to buy my material even though I have a bunch of books, courses on the tradersfly website.
Buy something or read something. Go to the library if you have to and get it for free. Continue to invest in yourself to make yourself better. Investing in yourself doesn't mean just in your education. It could also mean on you psychologically and emotionally.
If you're emotionally struggling with something call up a friend, if you're emotionally worried about a loss or about a conversation you had with a friend where there was an argument - fix it.
That way it's off your mental table. It's off your mental desk. Invest in yourself by doing physical things. Drink more water, stretch a little more, spend the first 60 minutes of your day focused on you. Reading a few jokes or comedies and things like that can balance out some of the anger the stresses that you have.
Investing in yourself is all about the quality of life. For many traders, they look at thinking that they already know better. That's what we naturally believe. That we already know things way before we know it.
For example, Most people already think they already know how to trade. They think they are good enough to trade. They believe they are smart enough that they know what they are doing.
What they do is they open up an account. They have some money, fill out some paperwork, and they start. All of a sudden they take $10,000 account that turns into a $7,000 account. And that $7,000 account turns into a $5,000 account and so on.
That's the case until they recognize they don't understand what they're doing. If you see this in yourself, you could have taken that $3,000 bought a few books and courses. Maybe got a coaching session with someone and at least have that evaluation of seeing yourself from an external perspective.
It's vital that you get a real life and honest approach to seeing what you're doing. To see how you're doing it and making adjustments to yourself. That's vital because you want to improve continually.
That's the goal that's the point of investing in yourself. It's for you to get better whether that's in trading, whether that's in your help, whether that's emotionally and psychologically.
All those things continue to improve and get better. If you get better, your trading will also grow.