Can you handle losing? I say this sincerely. Can you handle losing frequently as a part of a winning strategy?

Most can’t, but we’re not trying to be most people. Anyone looking to make more money than the market average, by default, is not “most” people. So let me tickle your brain for a second.

In life, we all have emotions. Stress, fear, shame, guilt, happiness, success and so many more. Investing, playing with money, is a job that involves more emotions than most people are ready for. It’s easy to check out of a day job and not let the emotions get the best of you, but when money is on the line, people struggle to distance themselves from their emotions.

This is what I call the danger zone.

The Emotions You Will Face

Lets lay out a scenario. You have $10,000 you want to invest across 4 stocks. A $2,500 position in each stock to keep things simple. You could even do it in crypto as well since the same emotions apply.

As you buy these positions a multitude of emotions and adrenaline attack the majority of investors, even if it’s just subtle.

As you decide what stock to buy and even think about pulling the trigger, you might experience:

• Anxiety

• Adrenaline

• Lack of Confidence

As you now own the position, you might:

1. Question if this is the right move

2. Hesitate as the stock immediately move down

3. Wish you would have bought something else

As the position moves to profit, you might experience:

• Relief

• Ego

• New found confidence and trust

As we buy, hold, and sell positions in the market whether they are stocks or crypto, every decision or lack of decision comes with a real time emotional rollercoaster that if you don’t manage will manage you.

The majority of the time as an active investor, you will be at a loss immediately as you make a positional investment. Does that make the investment wrong? Not at all. In fact, if you’re a good investor, you probably only win about 50% of the investments you make.

So in our scenario, you take 4 positions at $2,500 each. It’s pretty reasonable to expect that immediately all of those will be in a few dollar loss just due to natural market dynamics. By the end of the day, maybe one of those picks could be a few percentage points in profit, two will be around break even, and maybe one dropped a percent in price.

So many people at this stage will have so many emotional questions.

“Are these the right investments?”

“What if I get stopped out on all of these investments?”

“Does this make me a bad investor?”

These emotions are normal and if you want to actively invest to the best of your abilities you have to recognize them and pivot around them with a few key decisions. These emotions make you a normal, good investor.

The Decisions You Will Have To Make

The market is throwing an emotional onslaught at us but with a few key decisions we can throw an army of logic to balance this attack. Logic is the key to investing in a world where emotions run rampant. Logical rules will be the only thing that saves you from your own emotional brain because I promise you that your emotional brain will always be there in some form or another.

1. Does this investment fit the rules of my strategy?

2. Is the risk reward profile of this investment worth it?

3. If I get stopped out of this investment, will I be okay and capable of rolling money into the next investment?

The most concrete way to master your emotions in swing trading is to have a set of investing rules that you cannot break. With rules comes the elimination of emotions because you can always anchor your actions to a more stable frame of mind.

Some rules I live by are:

1. Price must be above 50 day SMA

2. 50 day SMA must be above 200 day SMA

3. Only buy on low risk entries like cup and handle

4. Never lose more than 10% on a trade

Set your own rules that you are happy and comfortable with and stick to them. I suggest the rules of CANSLIM as they have brought me the majority of my investing profits over the years.

What’s interesting enough is that as we build rules into our strategies, we also inherently limit our risk. Every investment decision you make will have risk. There is no elimination of risk. Only the management of risk.

All investments you make should have the opportunity to bring you more than you are willing to risk, or else they are not as advantageous investments. If you’re willing to risk 5% on a trade, then you should hope to make 15% or more to make your risk worthwhile.

Your decision of which asset to buy should follow rules with structure and have the opportunity to deliver you an alpha of return for your risk.

Lastly, there’s the decision of personal satisfaction. Can you live, and be happy, with yourself, if you make this investment decision. I find this quite easy to do if you successfully follow your rules, but I think this is one of the most important decisions you make in each investment because of the compounding psychological effect it can have.

Imagine if you make an investment that you know isn’t in line with your rules or risk and you end up losing money. How would you feel? Probably pretty dumb or shameful or guilty like you knew you shouldn’t have done it but did anyways.

The last thing we need as a swing trader is to compound emotions like this. Emotions like this lead to fear, or negative energy, and even may force people to try to win their money back. Not a good combination.

The key decision of compounding positive investment emotions, and keeping the ball rolling, is vital to successful trading. This positive momentum can occur even through a series of losing trades because you know that your rules are grounding you and saving you from larger losses.

As an investor, trader, or whatever you deem to call yourself, emotions and yourself are the largest battle you will face. It isn’t the “whales” or billionaires or market makers or other investors that you have to worry about. Good rules can navigate all that. You need to worry about the story you tell yourself in your head and how that can positively or negatively effect the long term outcome of your investments.

I hope in this newsletter you realize how a few key decisions can alter the way you play this game and help you move from emotion to rationality, which few investors can successfully do long term and often. This is where you can create an edge and separate yourself, and your wise decision making, from the outcome of the investment.

If you’re into meditation, heres a meditation I did the other day that was quite profound and interesting. All you have to do is turn on this video and sit and listen for 20 minutes.

Thanks,

Dawson