Many have heard that trading in the stock market is a mental exercise. Rarely is it so simple as to place a trade and just wait for the profits to roll in. ‘Set it and forget it‘ doesn’t really apply here. You have to be in the right frame of mind to handle losses but also to be able to handle gains as well.
There are those individuals who think it takes no effort to be able to handle a win, but how many have won huge amounts in Vegas only to hand it all over with the next hand.
Trading is no different. Handling a trade that results in a loss is mandatory if you are to make consistent gains in the market. But what exactly does handling a loss mean? You must not panic if a trade does not go your way. There is no person that trades who has 100% accuracy when timing the market. Your success resides in your ability to cut your losses when the trade is going against you.
Know When to Fold ’em
Hoping a stock will go the other way will not change its price. Hope is not the indicator you want to use when your money is at stake. You must have a plan if the stock goes up and a plan if it goes down. Before you place any trade there should be an exit strategy already set on what you will do when the stock price goes up or down. Every covered call position has a maximum profit target. It also has a point at which you will begin to loose money. You must know the difference between the two.
Many people stress out because a position that has had huge gains slowly begins to slip away. Oftentimes this is simply because they hold a position longer than they should as they think the stock may climb even higher. Some also take on losses that need not be so devastating because they thought the stock would rebound and help the losses to break even.
In short, you must have your head in the game if you wish to take profits from the stock market on a consistent basis. It’s not impossible, but you will have to get past hopes and wishes and look at the hard facts to tame the bulls and the bears.
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