Conscious Investing

How Investors can control emotions by following a well-defined Investment Plan

Analysis and Systems

Remember that both technical analysis (including Cycles) and trading/investing systems are
far from perfect in their results. The best systems provide a mathematical edge, but are
imperfect, so you should understand their benefits and limitations before you use them. If
you start to believe that you have found a foolproof system, you’re setting yourself up for a
fall. It’s critical for you to understand what type of trader you are, including your tolerance
for drawdowns, your preferred trade duration, whether you are willing to hold trades
overnight, etc…and then identify the systems that work best for you.

Losing Trades

Losing trades are a normal part of trading and investing. Even the world’s best traders have
losers, and these are not a reflection on the trader. Expect to have 40-50% of your trades be
losers. And a losing trade is not necessarily a bad trade - if you diligently followed all of the
Top 10 Investment Rules and your own trading plan. Investing is a game of probabilities. So
long as you follow the rules and execute the trade correctly, then congratulate yourself - the
trade is a ‘good trade’, regardless of the outcome.

But to stay in a losing trade beyond your exit criteria (in your trading plan) is simply wrong.
If left unchecked, these losers could turn into a disaster for your financial health. You must
be diligent in avoiding an overleveraged position which can move against you quickly to
become an oversized loss. There is no better way to deal with a losing trade than to simply
close the position as soon as it meets your stop-loss level. The longer you wait, watching the
losses from a losing trade snowball, the harder it becomes to cut the position.

The best option is always to avoid disasters by getting out at a designated stop loss point to
avoid a big loss. You can ask questions later. Don’t let your biases and convictions about
market direction guide your actions. Worst case, you can always reinitiate the same trade at a
later time, but only after you have closed the original trade and reassessed the new trade
again from scratch.

Big losing trades are not only damaging to your portfolio, they can be psychologically and
even physiologically debilitating…and they can directly impact the performance of your
following trades. Big losers can rock your emotional boat, putting you off center and causing
you to lose discipline on future trades.
The Markets Never Change

Whenever you think something in the markets might be different this time, consider whether
you’re trying to justify a bias towards a position. This often occurs either during a losing
trade or during euphoric and overly-extended moves. There is nothing new in the markets.
Things might look different for a time, but the different conditions will not last.

Be prepared and willing to be wrong in the markets. And understand that you will be wrong
often. Remember, the markets owe you nothing….and knowing this can make it easier to
both close losing trades and quickly change direction. The best traders are known for an
ability to accept being wrong, and to quickly shift as directed by the market. They respect
the market and don’t allow their egos to drive their actions.

Have respect for what the markets are telling you. If you find the market acting or moving in
an unexpected way, try to understand why. Fighting the tape or the market is, over time, a
losing proposition.

Remain Humble

Always remember that you’re merely a guest of the market, a tiny spec in the grand array of
traders and institutions worldwide. Simply put, you don’t matter, at least not to the
market. What you think you know, others in the market already know. And if you think
you’ve found the next big secret, or that your system is far superior to others…chances are
you’re wring. That you’re either new to trading/investing and have been lucky…or you’ve
been ignoring the facts about your performance.

There is no room for ego in the markets. Far too many traders and investors talk a good game
and boast of great gains, but the reality is that most are net losers in the long run. You may
hear about a risky leveraged trade that paid off, but you never hear about the 3 other risky
trades that eclipsed the trumpeted gain and also took much of the principal. Egotists often
ride losing trades down 30%, 50%, or even 70%; their ego and stubbornness are always their
undoing in the end.

Always Check Your Pulse

An investor’s emotional state plays a major role in his or her success - yet few investors
openly talk about their emotions. Whenever an investor is either too excited or too fearful
about his positions or performance, chances are he’s positioned incorrectly. The emotional
sweet spot for trading and investing is devoid of fluctuating and extreme emotions.

Remaining calm and having a clear state of mind is critical when trading the markets. The
market is never personal in its judgment of trades…but it always judges. Traders and
investors often take the market’s judgments personally, always to their detriment.
Try to remember your emotions on trades and use the knowledge to your advantage. When
you suffer a loss beyond your trading plan or have a significant gain, try to remember and
catalogue the emotions that accompanied your entering the trade. It’s important that you
learn to use your emotions as a trading indicator. Identify your emotions and how they relate
to specific trades that you have made….and understand the results of those trades.

Always prepare mentally and emotionally for what may be ahead on any
trade. Understanding potential trade outcomes will enable you to prepare emotionally for the
real-time action. Many investors can accurately forecast a coming move, but their lack of
emotional and mental preparation does not allow them to take advantage of the move. They
have difficulty managing themselves during panic-filled sell-offs or euphoric rallies.

Take Responsibility

As with anything in life, you must take full responsibility for your trading and investing
actions. Blaming someone else or some service for your results is a tell that you are avoiding
the truth. In the end we’re each responsible for our own wealth management and financial
success.

I often hear statements like “the game is fixed”, or “the plunge protection team killed my
trade”, or “they’re manipulating the market against me”. If you find yourself thinking or
saying things like this, you haven’t yet accepted that the market owes you nothing. You must
take responsibility for your trades.

A Chinese proverb is instructive: He who blames others has a long way to go on his journey.
He who blames himself is halfway there. He who blames no one has arrived.

Discipline

Learn to be disciplined with your trading and investing; there are no shortcuts to financial
success. One must strive to remain focused at all times, to follow a plan, to practice trading,
and to continuously work to improve. Successful investing is a journey, not a destination.

Like a world class practitioner of any discipline, an investor must strive to constantly get
better at his craft. He needs to be continually working to raise his skill level and to broaden
his understanding of a variety of topics including economic theory, the real economy, market
events, trading systems, technical analysis and charting, and fundamental analysis. The goal
is to be aware of everything related to trading/investing, and to fully understand those that are
related to your style and personal system.
About the Financial Tap

The Financial Tap publishes two member reports per week, a weekly premium report and a midweek
market update report. The reports cover the movements and trading opportunities of the Gold, S&P,
Oil, and $USD Cycles. Along with these reports, members enjoy access to three different portfolios
and trade alerts. As these portfolios trade on varying timeframes (from days, weeks, to months),
there is a portfolio to suit all member preferences. If you’re interested in learning more about The
Financial Tap and the services offered, please visit http://thefinancialtap.com/landing/try#