Discipline and patience is alpha & omega of any trading or investing. Without it an investor would experience huge losses. I have my own experience with lack of discipline and patience. I lost about 60% of my initial principal when I started trading about three years ago. I still fight with my emotions. My biggest issue is waiting when the market does nothing. As many other beginning stock operators I want to be rich quickly. Unfortunately there is no “get-rich-quickly” method how to trade stocks. Any such effort will result a huge loss. Of course an investor may be lucky enough to make fortune in the stock market, but it doesn’t work that way too often. It was my hardest lesson I have learned – and paid my big tuition for it. There are some steps every investor should do prior he starts investing or trading stocks.
Create your investing plan
It is easy said, but how the beginning investor can create a plan when she has no clue how to do it? To be honest, I struggled a lot before I could create my own. A lot of books or other sources talk about investing plan, loss plan and money management plan, but none of them tell the reader how to do it step by step. In one of my next posts I will tell about my own investing plan and loss control plan.
Write it down
Once an investor starts working on her investing and control loss plans it would be the best idea to write it down. Everyone can do it either by writing her own blog, or a paper trading journal. I myself created my investing and loss control plan in Excel spread sheet, so it does some of my calculations for me. I have it saved on my flash disk and carry it with me wherever I go. So I always have access to my investing plan. I never invest in the stock or fund prior looking at the plan to see where I am and whether such investment will fit the plan.
Stick to it no matter what
This is the most difficult part in investing. I always struggled to follow my plans by double guessing. I always asked myself whether the plan would really work or should I modify it? I think, investing into stocks is very easy process with no science behind it once an investor has a plan. I wanted to find a system which would allow me an automatic investing into stocks without too many science-work. Some books I have read recently (i.e. The complete Turtle Trader) comply with it. Once an investor set up his rules he can invest no matter what and there is no need to ask further questions. For example CAN SLIM system encourages investors to perform stock timing. I agree with this, however I feel this very difficult to apply it as a beginner. There were very successful traders such as Dan Zanger who turned his $10,000 account into $42 millions because he successfully applied timing and pyramiding. I set my rules how to enter the positions and when to leave the way it allows me to avoid excessive stock chart studying and determine when is the best time to enter. My screener and rule tells it to me right on time. The most important is to stick to it, don’t ask any questions.
When I say stick to the investing plan no matter what, how can investors recognize that their plan is the right one and it works? An investor can always test it on paper trading as I am recommending in my previous post by opening a Stock simulator. During the savings process an investor will have enough time to test her investing rules and plans. After she saves enough to start a real life investing she should know whether her plan works or not. I am not such a person and I wanted to test my rules in real life. So I started investing immediately and tested my rules during the investing process. However you do not have to do it this way.
Learn opening new positions only after referring to the plan first
One of my mistakes was I had my portfolio ticker opened in my office on the second monitor. It was nice watching how the stocks were doing, mainly when they were growing. Most of the time I ended up caught in the trap by jumping into the position and out. The best way how to spend all your money on commissions. At least my broker was very happy with my trading. This is why I was awarded with a special treatment from him so some of the trading tools I have for free now. However the tools won’t make me money. Today I do not do it anymore. I check the prices, but do not open any position until it appears on my screener and I check my Excel spreadsheet rules.
I am learning to stick to those rules as any new investor must do the same. It is not easy process to survive all the temptation, but the discipline will improve results of anyones investing.