Trading psychology is a topic that i’ve been thinking about more and more lately. While psychology is an important aspect of trading all markets, I believe it is especially useful to delve into in more detail for those who trade junior mining shares. Due to their high volatility and opaque nature, junior mining stocks can be especially treacherous for those who are less experienced and/or less aware of their psychological shortcomings.
One of the biggest mistakes I see investors make in the junior mining sector is taking things personally. What I mean by this is that they project a stock’s day to day movements onto themselves, and vice versa (project their feelings and desires onto the stock). As a market participant it is crucial to be unemotional; the market doesn’t care about you, it doesn’t even know you exist, nor does it care about your feelings and thoughts as to what it should be doing.
I like to use the metaphor of a trader being the surfer and the market being the ocean. The trader waits for the right waves to come along and then times his entry and exit as best he can to catch the sweet spot of the wave, all the while doing his best not to get hurt or drown. When a surfer seeks too big of a thrill or gets careless bad things can happen and he can easily get seriously injured or worse. The same is true for a market participant who enters the market seeking thrills or to satisfy his own ego needs. The market is a master at crushing egos and turning thrill seeking into nightmares.
Today I decided to make a list of things I notice about my own psychological approach to junior mining stocks when I am trading and seeing the market well. I also decided to contrast that list with a list of things I have noticed about myself when my results drop and I am not seeing the market as well.
Pscyhological approach when trading well and seeing the market well:
You can see a common theme in the above bullet points. The best trades occur in a state of flow and do not happen through forcing anything or projecting ones opinions upon the market. Allow the market to come to you and then let it show you that you are correctly positioned.
On the other hand, the worst trades usually come from being too stuck in ones views of how things should unfold and/or projecting ones wants/desires/opinions upon the market.
Psychological mindset for sub-optimal/poor trading decisions:
I think these lists are a great start but they are by no means exhaustive. Trading psychology is one of my favorite subjects, so I plan to delve into this topic further over the coming months.
Thanks for reading and please add any of your own insights into trading psychology/mindset in the comments section. I’d love to hear from you!
DISCLAIMER: The work included in this article is based on current events, technical charts, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. The views expressed in this publication and on the EnergyandGold website do not necessarily reflect the views of Energy and Gold Publishing LTD, publisher of EnergyandGold.com. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.
Written by @goldfinger