Free solo climbing is one of the most dangerous sports in the world.
The climber doesn’t use ropes for protection, so any mistake is potentially fatal.
Surely, you have to be insane to practice it.
When I first found out about Alex Honnold, the best free solo climber in the world, I was shocked. He dressed in a modest fashion, spoke politely, and had a calm demeanor.
Not what I was expecting.
I thought to myself: “This guy must have a serious adrenaline addiction.”
It turns out, however, that the reality is quite the opposite.
“If I get an adrenaline rush, something’s gone wrong. The whole thing should be slow and controlled,” says Alex.
The same is true of stock trading. Most people see trading as an action-packed rush. In reality, it should be anything but.
Buying and selling stocks should be a planned and controlled process supported by hours of research.
Not very exciting, right? Maybe not, but it’s the secret to consistent profits.
How To Avoid Trading Addiction
One of the mistakes investors make when they first begin trading stocks is to enjoy it too much.
Your first couple of trades are exciting, especially if they’re winners. You feel smart when you make the right prediction about the markets, and you feel emboldened. You want your good feelings to continue, and you’re sure you can do it again.
That’s because our brain is wired to release endorphins when we receive positive information. And this is what can lead to addiction. Repeat this feedback loop enough times, and you’ll find that you don’t feel at ease unless you are trading.
That’s where the problems start.
Soon you are buying more carelessly, without enough research to back up your picks. Next thing you know, your gains have disappeared.
3-Step Program For Kicking The Trading Habit
First, don’t buy stocks every day or even every week.
Instead, plan one day each month when you make your investments. It’s impossible to overtrade if you stick to this principle.
Second, invest in only one or two stocks per month.
This ensures you’re giving yourself enough time to research each investment.
Finally, third, don’t get caught up in the news.
The financial media makes its money by focusing on the shocking and the dramatic. This can distort the real picture and cause you to invest based on emotion rather than logic.
Know Why You Are Investing
Another reason people fail as stock investors is that they don’t know why they’re doing it.
Ask most stock investors, and they’ll tell you they do it because they “want to make money.”
If that’s also your answer to the question, then I recommend that you dig further.
Why do you want to make money?
Some people invest for retirement, some for extra cash flow, while others want to speculate on the market.
You must know your end goal so that you can apply the right investment strategy. Otherwise, you’re trading at random, and your results will be disappointing.
Answering the follow-up “why” question will help you define two critical factors every investor must understand—your investment horizon and your appetite (or tolerance) for risk.
If you want to preserve wealth, then you have a long investment horizon and a small appetite for risk. Your investment strategy should focus on asset diversification.
If you want to bet on the market direction, then your investment horizon is short and your appetite for risk bigger. In this case, you should focus more on technical analysis.
There’s Only One Way To Succeed At Stock Trading
Remember Alex? Imagine you’re in his climbing shoes, suspended thousands of feet above the ground, with nothing but the strength of your limbs preventing you from falling.
You’d panic, right?
That’s because you are not used to it. You haven’t practiced enough climbing to feel comfortable in that situation.
It’s the same with investing. When you start out, you will likely lose some money. That’s just the way things work.
Moreover, inexperience often means that losses are greater than they should be. Fear, greed, and hope can cause us to make bad trading decisions. Fear of missing out can motivate you to invest when the price is too high, greed can keep you in a trade too long, and hope can have you clinging to a losing trade long after you should have exited.
The secret to avoiding these pitfalls is the secret to success developing any skill—practice, practice, and more practice.
If you’re still young, haven’t accumulated a lot of wealth, and want to learn on your own, then investing early and often will teach you valuable lessons for a small price.
If you are entering the investing game later in life or you can’t afford to gamble your wealth, you could do with some professional guidance.
Financial advisors are expensive. That’s why I’ve created True Retirement Wealth, a monthly advisory service that introduces readers to the investments I’ve identified as the best buys on the market each month.