3 Simple Steps to Keep the Stock Market from Driving You Insane

Is the stock market driving you batty?

You’re not alone. We’re dealing with an irrational, psychotic market right now. It’s a three-headed monster running on pure emotion. It doesn’t follow logic and you’ll go nuts if you expect it to. You could also lose a ton of dough investing on that assumption…

But today I’m going to save you from insanity. You can save yourself a lot of pain and misery if you take a few minutes to think about the market differently. And who knows, you might even start enjoying life again!

So let’s get to it. Here are three things you can do to keep the stock market from shipping you off to the funny farm:

1. Stop staring at 5-minute charts

It’s tempting to watch the market during the day. And any decent online broker now gives you access to millions of ways to absorb real-time data. You don’t have to be Bud Fox to get access to up-to-the second quotes and one-minute candlestick charts. Heck, that’s the starter package in 2015.

But don’t do it. You can’t will stocks higher or lower with your mind. There’s no point in cheering on your open positions. In fact, staring at your stocks all day might actually cause you to make terrible snap decisions that ruin your trades. Your emotions and your trading success go together like oil and water.

If you want to be a successful trader chuck your emotions down a well. Set your buys. Set your stops. Then go play in a sandbox or read a book. Unless you’re daytrading, that blinking real-time chart is nothing but trouble.

2. Start thinking about your risks first

The stock market offers a bonanza of opportunities to make money. You’ll reap the rewards if you put in the work. Or I should say, if you put in intelligent work…

Too many traders spend all their time fantasizing about all the gains they’ll make. And that blinds them to the risk. They see a perfect setup and they pull the trigger.

But then the market throws a curve ball they didn’t anticipate. They take one loss. Then another. A new setup appears. Thee throw more cash at the markets. And pretty soon our fictional trader is dealing with a huge drawdown thanks to a string of losers.

What went wrong?

They weren’t thinking about risk. Big drawdowns usually occur when a trader piles up too many large positions during unfavorable market conditions. Remember, ideal trading setups aren’t guaranteed every week. If the market isn’t cooperating, you shouldn’t be going “all in” on every single trade. Risk small or not at all when the market’s in flux—even if you are seeing setups you like.

When the market starts chugging on all cylinders again, you can consider ramping up your position sizes back to normal levels.

3. Repeat after me: “The market will do whatever it wants, whenever it wants.”

You’ve probably heard a lot of correction talk lately.

That’s because everyone and their third cousin thinks stocks needs to move lower.

But guess who doesn’t care? Mr. Market, that’s who. The stock market doesn’t care what you think. It doesn’t care what anyone thinks. So many people waste their time and energy talking about what the stock market should do, instead of focusing on what the market’s actually doing.

If that’s not insanity, I don’t know what is. None of us can make the stock market magically turn into a logical, rational creature.

So you have a choice…

Drive yourself nuts trying to convince a completely irrational market to behave the way you think it should. Or watch the signals it fires off each day and try to exploit them for profit, even if they don’t make sense to you. Or maybe I should say, especially when they don’t make sense to you. Because they often won’t.

These rules could help make you a lot of money over time. Ignore ‘em and you could be heading for the loony bin. Then the poor house.

The choice is yours.


Greg Guenthner
for The Daily Reckoning

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