A calm investor always manages to keep themselves calm somehow – how? That’s what this article is for.
Investing is easy, but making money isn’t. The ones who are calm are the ones who make money from the financial market.
But here is the whole point: when I say they make money from the financial market, I mean they are making money off of you.
I am saying “you” because you are likely to be just one of those 90 percent of the losing traders. This statistic deems that over time 80 percent lose, 10 percent break even and 10 percent make money consistently.
It is certainly not easy to remain calm while investing. And what justifies that even more is the fact that remaining calm is the only thing differentiating 90% from the top 10%.
If you are a beginner, for example, you might think that you lose every time and this happens only to you. But this is not true, as this is the same thing happening to the best traders. I am talking about losing trades here.
And here comes the difference:
The main difference between a winner and a loser investor is their ability to remain calm during losses.
Beginners lose because of these psychological problems:
- Pushing stop losses further and further
- Trying to get rich quick
- Emotional imbalance
- Forgetting their assessment and investment plan
- Using emotions instead of common sense
- Not being able to accept a loss
- Not being disciplined with your plan
- Pushing stop losses further and further
Pushing stop losses further and further
This is what most beginner traders often do. They push it because they feel impatient to get their investment back.
How do you remain calm in these situations? Just relax, take a deep breath, and think that you have still made some money even if the price of an asset drops.
Trying to get rich quick
It is natural for beginner traders to think of making huge profits fast. That’s why they try to sell assets too early earning only small profits. And of course, the price falls afterward, so the initial profit disappears later on.
How does a calm investor keep themselves calm here? They know that big profits cannot be made in one trade, so they let go and wait for bigger trades.
Emotional imbalance
The wrong choice of assets and trading strategies can also lead to emotional imbalance. The main reason here is the inexperience of a beginner trader.
How does a calm investor keep themselves calm here? Just choose the right time to trade.
If you are really a beginner, you should follow the advice I gave in my previous article Secrets of Successful Trader. And if you are an experienced person, then read this article about how to use emotions in investing.
Forgetting their assessment and investment plan
Investors often do not stick to their evaluation and investment plan when making new trades, as they want to make more than usual profits.
How does a calm investor keep themselves calm here? In the beginning, it is not necessary to stick to your plan. Gradually after a few months, you do need to stick to your strategy if you want to be successful.
But if you made a mistake at the beginning, don’t panic and just look for other assets that can bring profits for now. And do not give up on them because of some random news from Japan or Washington.
Using emotions instead of common sense
The main thing here is emotions. I see a lot of investors putting their faith in emotions and doing the opposite of what they should do.
They are trying to be happy when the price goes up – but they should not. And they are trying to be sad when the price falls – but they should not either. It is enough that you take a wise decision in your investment when you feel calm, this is all that matters.
How does a calm investor keep themselves calm here? The best way is to remember that you are doing this for the long term. You should not expect huge changes in a few days, otherwise, you will lose your mind and stop investing.
Not being able to accept a loss
It is natural for almost every person not to accept a loss. It is hard to say goodbye to a beautiful dream about buying a house or car, but it happens quite often (though it’s funny).
While trading, beginners often fail to take small losses. And the result is obvious; they end up with a much bigger loss.
How does a calm investor keep themselves calm here? The best way to do so is to comprehend the fact that losses make the winners, not wins.
Not being disciplined with your plan
Disciplining yourself is the most important thing when you consider long-term investment goals.
An investment plan is something almost everybody has – but the problem is that they can not be disciplined with their plan. It is all about your ability to stick with one single plan.
If you are worried about possible losses, then you are losing…Firstly, do not follow the herd. Create your own plan and create your own strategy. What has worked for others will not work for you.
How does a calm investor keep themselves calm here? A good investor knows about the law of large numbers. If there are enough trades, then you will get an accurate measurement of your plan/strategy’s accuracy.
So what will happen if you are disciplined? You will not leave your “good” plan. Backtesting is the key.
What do good investors do in order to stay calm?
- Avoid emotional involvement. No emotions no profit; and no profits no loss is the law. If you want to turn out to be a calm investor, then you must be calm during losses. If you hold to your plan and stay disciplined, then your profits will grow, and eventually, turn out to be bigger than your losses.
- Avoid overreacting to bad news. The bad news is not something that you can ignore – it is just a sign that what was working before no longer is working. So it is better to take some deep breaths and calmly analyze the situation.
- Avoid feeling too good when the price goes up, and bad when the price drops. This attitude will surely lead to mistakes in judgment and an unstable budget that often makes you lose more than you win.
- Avoid trading too early and too late. You need to be disciplined and wait for the right moment. And another big point is to not overinvest in a single asset that makes you lose good money by trading it too much.
- Avoid over-trading. No matter how good your trading plan is, if you trade more than you should, then your chances of making a profit will drop drastically, while your losses will increase to the maximum – because at this point you are gambling on one single trade instead of sticking with your plan. So be disciplined and buy only what you need and do not overtrade!
- And also avoid losing your discipline. It is all about discipline, if you lose it, then you will never make it.
How does a calm investor keep themselves calm here? Just avoid making the obvious mistakes while trading, and then I’m sure, you will be successful!
Things good investors do in order to stay calm:
Create a good strategy in the first place
As we already know, changing the strategies time and again is a loser’s trait. And if you want to stick with one strategy, create a good one in the first place.
Of course, you don’t want to follow the wrong one for 23 years. A good strategy also means one that suits you best, not the one which has worked for Warren Buffett.
If you have confidence in your strategy, you will remain calm throughout all your trades.
Believe in the power of compounding and do not expect huge profits in a short time!
Every trader has their own compound interest plan for the future. Some people take one year, some take three years, others even 5 years or 7 years to reach their goals – but the most important thing is that you need to plan ahead and have a clear path to your goal.
Advanced meditation methods
Breathing exercises, yoga, and other advanced meditation methods are fantastic ways to relieve stress, make yourself concentrate, and improve your trading results greatly. If you start meditating from the very first day of beginning to trade, then you will become a successful investor. It is inevitable!
Be optimistic about everything in life
Optimism is the key to success for both short-term and long-term investors. If you think everything is going to be okay in the end, then it probably will be okay in the end. So, never give up on your plans; they are much more realistic than you can imagine.
Final words
There are small things that keep average traders from being good traders – and vice versa. Small self-improvement can help you become a more calm trader, and as a result, also a successful one.
It is not about making money – it is about being calm. As Buffett says, “The financial market is a place to transfer money from the impatient to the patient”.
