In case , you are not sure yet, Psychology matters in trading, a lot!
After training for over three months, I took a trade today that violated all my trading rules. It was a no brainer. Don’t take that trade or take the opposite trade. I still took the trade.
Let me be more specific here.
I bought 200 shares of Chholafin. It was call from one of the Gurus I follow. He is a genuine guy and his accuracy rate is also pretty good. It was an intraday trade. I bought at the first candle in the highlighted area. Let me breakdown as why it was a wrong trade to take:
- The stock was in a downtrend. You don’t buy against the trend. There was no chance of it being a retracement as It was already near the bottom Bollinger band.
- MACD was in the red zone. A perfect shorting candidate!
- % B was in the negative territory. No one buys there, no one!
- RSI was still not below 30, hence, it was not in an oversold zone.
- No huge volume breakout.
So, according to the system that I use, there was no buy signal at all. Heck, I even hesitated buying it when it was at 1190. Then, it dropped to 1189. I thought, I am getting a better price, ignoring all the indicators. Greed took over. I rationalized, “That guy is a “Stock Guru”, he must know something that I did not.” And, I bought.
That guy admitted he was wrong and updated that I should sell, when the stock was trading at 1188. I hesitated. That would mean a loss of 200. It rebounded to 1188.45. I said to myself, “See, I was right to not sell”. Then on the next candle, the stock fell, forming a huge lower shadow, hitting my stop loss. And I was out of market.
Why that guy who gave the call is a “Guru”?
He was gracious enough to admit that he was wrong and got out of the market before it was too heavy a loss.
Why psychology matters?
I let my greed over my rational thought process to take over while making the trading decisions. In fact, 3 out of 5 indicators told that it was a sell
I did not trust my own analysis.
I did not get out while there was still time to get out with a small loss. I could make my ego take that loss.
Trading is a discipline that requires huge mental strength and self belief. It build over time through experience and I hope today’s failure was a huge stepping stone for me!
Till next time, keep learning!