8 Tips for Emotionless Investing

If you're new here, you may want to subscribe to my RSS feed so you don't miss anything. Thanks for visiting!

1. Keep a Trader’s Journal – Keeping a trader’s journal is the first key to keeping emotions out of your investing. It becomes a mathmatical thing as you track your trades objectively. The spreadsheets won’t lie. The spreadsheet doesn’t know about fear or hope. Track your trade transaction details as well as why you made the trade. Your trading journal will also help you find patterns in your trading. ie: “Everytime I trade on Friday I lose money.” This doesn’t mean Fridays are bad trading days. It just means you aren’t good on Fridays.

I keep a trader’s journal that I developed that not only tracks my trades, but categorizes my short-term, long-term profits and color codes my gains/losses and open positions.

To get your copy of the daxdesai.com Trader’s Journal: Link to this post on your blog or website with the anchor text “High Return Investing with Dax” and I will email it to you.

2. Research – Invest because you have reasons, not because you got a hot tip or got fired up because of someone else’s beliefs. Know the virtue of the stock and make sure your facts can beat out emotions. Research helps you become detached from your trading positions.

3. Chart – Charting a stock enables you to choose your entry and exit points. These points on the chart have no basis in emotion. Charting is a good way to keep emotion out of your trades.

4. Avoid “too much” media – Media headlines are usually bold. They have to be to keep our attention. You won’t read “Fed cuts rate 50basis points.” You’re more likely to read “Fed Saves Market. DOW explodes!”. Writers deal in emotion. The good writers are able to elicit thought and emotion in their readers. Avoid too much media. Dig out facts.

5. Know your style - Recognize and accomodate it. If you find yourself trading and your stomach churns at the ups and downs, you are more likely to jump out of positions at the wrong moment. If this is the case go for longer term plays so you can avoid short-term losses. If you don’t have patience then don’t lock yourself into a long-term investment. You will be more likely to break it early to get short-term satisfaction. Know your style and accomodate it. You can’t go against yourself. You will always lose that battle.

6. Have an exit strategy - Just as it is important to know when to buy, it is equally important to know when you will exit. This eliminates “gut” feelings or “hope” or despair. Selling out of emotion will not yield the same results as a planned exit. When you do exit, don’t dwell on the trade 6 months from then. The trade is in the past. Learn what you can, but let it go and move on.

7. Be loyal to your wife, not your stocks – Don’t hold loyalty to your stocks. Don’t feel you must “stand by them”. They are simply investments. They won’t “stand by” you just because you hold on. Let go at the right time. Don’t look back.

8. Rules – Set rules for yourself. Follow them. If your daily objective is to trade 10% of your portfolio, don’t break your rule and trade 30% because you have a “feeling”. The more you break your rules, the more irrelevant your rules become. Don’t let your rules take a back seat to your emotions.

It has been said that the best traders have ice-cold water flowing through their veins. This is an allusion to no emotion. It is true. The biggest traders take big losses in stride, but they also take big gains without much emotion. You must take the bad with the good, but you must always stay unemotional and be objective with your trading.

To get your copy of the daxdesai.com Trader’s Journal: Link to this post on your blog or website with the anchor text “High Return Investing with Dax” and I will email it to you.

If you enjoyed this post then make sure you subscribe to our RSS feed.