Six Steps to Staying Psyched for Stocks

The technical skills of trading can be learned. But it's the mental and emotional resilience that truly determines your success.

The most important thing to understand and embrace about trading stocks is that the reason it can make you rich is that it is extremely difficult. The only way to really succeed at trading is to slog away, day after day, for a very long time. It is a grind over the course of years and not a home run derby. No matter how good you are, you will make dumb mistakes, experience ugly surprises, and face a host of obstacles. You will lose money often, and bad luck will be a constant companion. That is just the nature of the beast.

The rough periods will take a mental and emotional toll, and ultimately, that is what drives most people to quit. They lose confidence in their ability to succeed and just can't handle the frustration any longer.

All traders will experience ups and downs. Some weeks, it will feel like you are the master of the universe, and you'll never have difficulty finding good trades again. Inevitably, that is followed by a period in which you can't seem to do anything right. Every stock you buy goes straight down, and your stops are consistently set at the low point of the day.

One of the things that makes trading harder is that no one is really truthful about their struggles, especially on social media. It will often feel like everyone is producing huge returns except you. The reality is that the best traders in the world often make stunningly bad decisions and suffer huge losses. The difference is that they shrug it off and keep slogging. Learning that failure is just a part of the process is critical.

One of the great things about the stock market is that as long as you have capital you can have a fresh start any time you want. It is quite easy to wipe the slate clean, forget the past, and act as if you just started to trade today for the first time.

Here are some tips to help you develop the right mindset for long-term success.

Let go of your baggage. What will drag you down more than anything else is when you focus on the stocks that you are holding that you have traded poorly. You failed to sell when you had a big gain and are now sitting on a sizable loss that could take years to recover. You don't want to sell because you are still confident in the fundamentals and the future, but it is downright depressing to just look at the situation that you blundered into.

The best move is to forget your cost basis. Forget the price you paid for the stock and forget that you didn't sell it at the right time. Pretend that you bought that stock today. Whatever the current price is, that is your new cost basis. Would you buy this stock right now at this price if you didn't already own it? Are you sure, or is it your reluctance not to admit you made a mistake? Dump it if it's a dog and move on, but try to develop some objectivity about the stock instead of looking at its history. Everyone is holding some disappointing names, but are they still holding them because of inertia, or do they still have the same potential that caused you to buy them initially?

Develop a new plan. Once you let go of the baggage of your cost basis and look at a stock as if you bought it today, what is your plan? Where would you set some stops? Where would you buy more? Where would you take some profits? It doesn't matter if you have a loss or profit from your original cost basis because that no longer matters. Just have a plan on what you will do as the situation develops and stick to it.

Be more reactive. What tends to cause the most problems for traders is that they fail to react to changing conditions. We are encouraged by Wall Street experts to make forecasts and to try to predict the future, and as soon as we do that, then we have the baggage of being right or wrong to deal with again. Sometimes, we will be lucky, and things will work out, but don't start believing that you have a clue about what the future holds. Be mentally ready to react, and don't become emotionally invested in making predictions.

Be open to a variety of market outcomes. I actively embrace my inability to predict the future. We could see a deep, ugly bear market in the near future or another euphoric bull market celebration. I don't know what will happen, and I don't care, because I can't control it. I hope we have a good trading market, but I have no clue what will happen. By declaring that I don't know what will happen, I am in a better position to act as conditions change. I don't have to worry about being right or wrong because I never made any pompous prediction a month ago.Look for new ideas. Another great thing about the market is that there is a new opportunity every day. You just have to look for it. They are easier to find in a "good" market, but they are out there. If you stay optimistic about your ability to find the next winner and work hard at it, you will likely find that you make some lucky choices at times.

I'm always optimistic about what lies ahead. Not because I think the market is going to fly higher, but because I know that there will be opportunities if we look hard enough. So, let go of the baggage and get yourself in the right place mentally. The future is very bright.

At the time of publication, DePorre had no position in any security mentioned.