Emotions & trading
I’ll be frank: I’ve been having a rough couple of weeks with trading. And if you’re one of my Patreon members, doing the same trades that I do (even if it’s in different amounts than what I do), then you’ve been having a rough couple of weeks, as well. Never mind that we all did extremely well earlier in the year (and we probably will again soon, too) – these last couple of weeks have killed us! But do you see me freaking out in my recent daily live streams? Do I cry? Do I scream? Do I panic? Of course not. The main reason is one that I reiterate to you guys all the time: I only invest what I can afford to lose (and you should, as well), so if I do lose it, that doesn’t affect my standard of living at all. But another important reason is that emotions have no place in trading. Whether you’re up or down, trading is business, never personal.
Even when you’re up, getting caught up with your emotions can be dangerous! Let’s say you’ve timed a particular trade perfectly… You bought in at the bottom, sold at the stock’s peak, and you just CRUSH on the profit. You probably think about that trade a lot. You brag about it. And you probably convince yourself that it makes up for past losses.
But now, there’s a good chance that you’re way to focused way too much on that win, and it’s distracting you, clouding your objectivity on other potential trades. Really, this is the same thing I see at casinos with some people when I’m playing slots (on my other YouTube channel). People will hit a huge jackpot on a slot machine, and now they’ve got that rush, and they’re always chasing it. Occasionally (but not consistently), I’ve been guilty of this too, both at the casino and when I’m trading, and in both cases, this emotional investment has never paid off for me, and probably nobody else, either.
Honestly, much of my most successful trading doesn’t happen overnight. I’d be a fool to invest a massive portion of my net worth into any stock immediately, so I don’t regret that I haven’t done this. For every investment I could have made this way (an investment that could have quintupled or more), there are 10 others that – had I done the same thing – would have bankrupted me by now. I shared a good example in last week’s blog post, but it’s worth mentioning again to drive this point home:
Do you know how much a single Bitcoin cost when I first heard about the technology? 12 cents. That’s right, 12 cents. If I would have invested just $10,000 in Bitcoin back then, I would literally be a billionaire today. And I could have done that! I had the money, and I had the opportunity. But who the hell knew BTC would be up above $50,000 today? Nobody. If lots of people knew this, then lots of people would be billionaires today from Bitcoin, but only a few actually are. Do I think about this sometimes? Sure. But do I obsess over it? Of course not.
And that’s the flipside to the emotional component, really. Just as you shouldn’t focus on your wins to the point where you invest carelessly, so too should you not tighten up too much after a missed opportunity or loss out of fear. That will just lead to – you guessed it – more missed opportunity.
So, what’s the best way for you to invest? I can’t say for sure, that’s up to you. But what I can say is this: Even though we’re down these last few weeks, I’m extremely confident that we’ll bounce back, and if you ever want to make the same trades that I do (in real time), then you can be right there with me. It’s not a guarantee, of course – nothing is. But, because I do my best to keep my emotions out of my trading, I think I’ve got a better shot than most.