TRADE EXECUTION
Quick Decisions
Trade Execution is the completion of a buy or sell order for a security. The execution of an order occurs when it gets filled, not when the investor places it. Traders are frequently required to think quickly and make quick decisions, jumping in and out of stocks on a whim. They’ll need a certain level of mental presence to do this. They must also have the discipline to stick to their trading plans and understand when to take winnings and losses. Emotions just cannot be allowed to get in the way.
Fear
When traders receive unfavourable news regarding a specific stock or the economy, they are understandably concerned. They may overreact and feel obliged to liquidate their positions and sit out of a trade, avoiding more danger. They may save some losses, but they may also miss out on some rewards if they do so.
Fear is a natural emotion to a perceived threat, which traders must understand. It is a threat to their earning potential in this scenario.
It might be beneficial to quantify the fear. Traders should think about what they’re terrified of and why they’re afraid. That thought, however, should come before the bad news, not after it.
The two ingrained emotions to keep in check are fear and greed.
Traders will know how they naturally interpret and react to events if they think about it ahead of time, and they will be able to go past the emotional response. Of course, this isn’t simple, but it’s critical to the health of an investor’s portfolio.
Defeating Greed
There’s an ancient adage that “pigs get slaughtered on Wall Street.” This refers to greedy investors holding on to a successful position for too long to squeeze every last penny out of it. The tendency will eventually reverse, and the greedy will be caught.
Greed is a challenging foe to defeat. It’s usually motivated by a desire to perform better, to get a little more. A trader should be able to recognise this impulse and establish a trading strategy that is based on logic rather than whims or instincts.
Creating Guidelines
When the psychological crunch hits, a trader must develop rules and stick to them. Establish rules for entering and quitting trades depending on your risk-reward tolerance. Set a profit objective and a stop loss to remove emotion from the equation.
You can also choose which specific events, such as a positive or negative earnings announcement, should prompt you to purchase or sell a stock.
It’s a good idea to set daily limitations on how much you’re willing to win or lose. Take the money and flee if you meet the profit target. If your losses reach a certain threshold, fold your tent and return home.
You’ll live to trade another day in either case.
Reviewing and research
Traders must learn everything about the stocks and industries that interest them. Keep up with the news, educate yourself, and attend trade seminars and conferences.
Give the research process as much time as feasible. Studying charts, chatting with management, reading trade publications, and conducting other background work such as macroeconomic or industry research are examples of this.
Fear can also be overcome with knowledge.
Keep your options open.
Traders must maintain flexibility and consider experimenting from time to time. You might, for example, think about trading ‘options’ to reduce risk. Experimentation is one of the most effective ways for a trader to learn (within reason). The experience could also aid in the reduction of emotional impacts.
Finally, traders should evaluate their performance regularly. Traders should reflect on how they prepared for a trading session, how up to date they are on the markets, and how they’re progressing in terms of ongoing education and assessing their returns and specific positions. This frequent evaluation can assist a trader in correcting errors, changing undesirable habits, and improving total profits.
