Achieve Success Utilizing Trading Psychology

Physician's Money Digest, January 2006, Volume 13, Issue 1

It doesn't take much skill to find yourself in a winningtrade, whether a novice or professional trader.But to create consistent results, physician-investorsmust continually eliminate any susceptibilityto trading errors. Getting in too soon or too late;ignoring signals; not putting in, taking out, or movingyour stop—these investing actions are all examples oftrading errors that put your finances at risk. To avoidputting yourself one trade away from financial andemotional disaster, physician-investors should masterthe following psychological trading tactics:

•Employ the right system. Investors need tolearn how to read the market to achieve investingsuccess. This ability to discern market probabilities isreferred to as an edge. To determine market positions,investors should use a time-proven system thatprovides fundamental as well as technical analysis.

•Train your mind to think in terms of probabilities.Price and volume patterns imply consistency.While it is true that these patterns do repeatthemselves, a paradox exists: Outcomes to the patternsare inconsistent, meaning there is a randomdistribution between wins and losses on any givenset of variables that define an edge. Physician-investorsmust train their minds to think in terms ofprobabilities in order to minimize susceptibility totrading mistakes. Believe that every moment isunique—live in the "now"moment of investing.Instead of continually focusing on just makingmoney, make a commitment to acquire the mentalskills to become a successful investor.

•Observe your state of mind throughoutthe trading day. It's easy for any trader to becomedistracted, get caught up in the euphoria of a win,and then lose a lot of money on the next trade.Euphoria causes investors to become vulnerable tomaking huge errors. But if investors are aware oftheir thoughts, lapses in judgment can be prevented.One way to curtail distractions is by maintaining atrading checklist. Referring to your list and checkingeverything off as you trade can help you monitoryour actions, and thus avoid slipping into aeuphoric state.

Successful trading is about identifying edges inthe market, and then doing exactly what you needto do without hesitation, reservation, or conflict.Rather than trying to predict what's going to happennext, focus on your actions, strategy, andmoney management. If you employ psychologicaltactics when you trade, the results will take careof themselves.

Michael Doran is a private money manager affiliated with Sierra

Capital Planning in northern California. He runs a fee-based business

and a hedge fund for qualified investors. For more information,

call 877-467-8657 or visit www.sierrainvestor.com. Avanish

Agrawal contributed to this article.