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quinta-feira, fevereiro 09, 2006

Slogans Can Have Deeper Meaning

The trading world is replete with slogans: "Cut your losses short. Let your winners run. Anticipate losses. You have to risk money to make money." Merely repeating these slogans to yourself can be useful at times. Take making a series of losing trades for example. When you are feeling bummed after a huge loss, it can provide solace to think, "Losses are commonplace in trading." Just repeating the slogan a few times can make you feel better. That said, there are times when these slogans seem trite. Of course it would be great to "let your profits run," but it's hard to fight the urge to sell prematurely to lock in profits. At the moment of execution, your state of mind says, "I don't care if the price can go higher, I'm afraid. I want to sell right now." Our thoughts, emotions, and actions can appear to occur in a matter of seconds, and when that happens, it seems as if we have little control. So how can repeating a slogan be of any value at times like these? One way to make slogans more valuable and useful during the trading day is to link them to a constellation of thoughts, images and actions.

Throughout the day, trading events spark emotions and a state of mind that often trigger an automatic reaction. For instance, you may see the price of a stock you are going long on start to fall. Without much thinking, you feel fear, and start to sell. This action is inconsistent with the slogan, "Let your winners run." At the moment you want to sell, however, you are indeed in a state of mind of fear and uneasiness. At that moment, all your mind wants to do is resolve the uneasiness and the fastest way of doing it is closing the position early. At that instant, it's hard to counteract the powerful automatic tendency to sell prematurely. The only way to counteract this tendency is to have an alternative set of thoughts, images, emotions, and actions ready. During off hours, visualize the stock you are monitoring dropping in price. As you visualize the event, you may experience the urge to sell. But rather than sell, think of an action plan to counteract this urge. The action plan should consist of a series of thoughts, or self talk, that you can use to counteract the urge. Examples of such thoughts are "I need to hold on. I need to calm down and just focus all my energy on waiting patiently. I need to wait for the price to fall so low that it reaches my exit point. It's more important to follow my trading plan and have a justified win than take profits just to feel better. I can wait if I try." Statements like these are necessary to map out during off hours rather than trying to generate them on the spur of the moment during the trading day.

Mapping out a series of thoughts, or self-talk, to repeat to yourself is merely the first step. The second, more important step is to practice repeating the self-talk statements to yourself during off hours. It's like exercising; you have to practice using the self-talk statements over and over to get them to make a lasting difference. Once you have a set of self-talk statements, it is vital to visualize your stock price dropping and repeating the self-talk statements. The objective is to associate the self-talk statements with the images of seeing the price fall. Since the self-talk statements counteract the urge to sell prematurely, after repeating the self-talk statements many times, you will automatically think of patiently waiting. As you repeat the self-talk statements over and over, visualize holding on to the losing position, and eventually seeing the price increase. These images will reinforce the self-talk statements so that you have a constellation of thoughts, images, and feelings associated with waiting patiently. Finally, mentally label this constellation of thoughts, images, and feelings with the slogan "let your winners run." When you are in the midst of seeing a falling stock price, you can think "let your winners run," and it will trigger the constellation of thoughts and images you have practiced beforehand to counteract the urge to sell prematurely.
It's useful to have a well-formulated action plan to meet various trading situations. You should have a set of thoughts, feelings, and images to counteract those thoughts, feelings, and actions that might spontaneously compel you to act on impulse against your best interests. Slogans are a good way to label these thoughts, feelings, and actions, and help you conjure them up at the right time.

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