Another excellent question.
First things first - don't feel bad, be gentle with your self and do not get frustrated.
You are not the first person to face this issue and you won't be the last one either. Most of us have faced this issue and some might still be facing. You were honest enough to accept it and ask it and that's a good thing. Its only few who can execute trades without any emotional interference. For others it is a long journey to reach a state where one is able to trade naturally without feeling any emotions.
Having said that, how does one reach such a state. That's where well tested Mechanical Trading Systems help. Let me explain in detail.
It is well known that we do not trade markets but we trade our beliefs. And that is where the problem lies. How? Take a look at following examples -
1) One reads when price crosses above n-Day moving average it is very bullish. One scans the market for this condition and finds one stock. If the stock is an up-trend, it works very well. And this may happen for several trending stocks. But as soon as market enters trading range and there is a series of losses the belief gets shaken up.
2) Now he/she discusses this with his/her colleague who is supposed have made huge fortunes in market. He/she tells him/her that moving averages are useless, he/she should follow MACD (or any other indicator for that matter). He/she comes back happy now he/she has found the holly grail. Again scans the market, trades the stocks as long as there is profit. Series of losses and another belief is thrown in the dust bin.
3) Out of frustration, he/she takes a break and starts watching television business news channel. He/she listens to a fundamental analyst who says technicals are useless. It is the fundamentals that drive the market PE ratios, Book Values etc etc. He/she feels excited having realized the big mistake - he/she should not have followed technicals. That was the issue and that's why he/she was making losses. Now he/she will never look at technicals but only follow fundamentals. He/she starts researching and shortlist few companies. All is well till there is profit. Then economy turns around and another belief goes down the drainage system.
The list is endless and examples can continue.
So if one should not trade beliefs, then what should one trade. One should trade convictions. What is conviction? An unshakable belief in something without need for proof or evidence. How to develop conviction? Back Testing and Walk Forward Testing.
Here is what I would suggest (Ignore if you have already done one or more of the following)
First spend some time and develop a good trading system.
- A trading system should have Entry and Exit Strategies, Risk Management and Position Sizing.
- Take any entry idea - it could be as simple as 20 day SMA cross over.
- Decide upon SL and Trailing SL - it could be as simple as previous 2 or 3 days lows.
- Decide upon Targets - it could be like upper Bollinger band.
All the above are just beliefs.
Now back test this system for over 30-50 stocks for different sectors, different market caps etc on a data of 15-20 years. Analyze the results. If you are happy move on to do walk forward testing. Traditionally walk forward testing is defined as manually testing the system on a different set of historical data (this would mean stocks that were not used in back testing). But I prefer to do some this similar to paper trading live market. You can use IciciDirect's Virtual Stock Game or Omensys SIM to do this. Keep doing it for considerable period of time till you are comfortable.
This sort of testing converts beliefs in to convictions. Now you will know that if you trade this system, out of 100 trades x% could be losses, there could y consecutive losing trades, there could be z amount of loss in any trade etc etc. While you will become comfortable taking losses, it will also help when you are in position. You will not be bothered by any adverse fluctuations. You know you have a SL and don't have to worry till stock is above that (for long position).
Some final points
-Write down all the rules of the trading system, and follow them religiously day in day out till they become part of you. That's when flawless execution is achieved. Remember if we keep doing same thing again and again, every day it becomes routine, it becomes natural and it becomes part of us.
-You may need several systems for different types of markets. You may have to test many more system to get several good systems.
-Find out what works for you. For some fundamental works while for other technical. Again in fundamental there is value and there is growth. Similarly in technical there are some who follow patterns while others indicators while others do pure price action based.
-Educate your self thoroughly in whatever works for you - fundament or technical. Keep educating yourself. Never miss an opportunity to learn. Remember Knowledge is the best medicine for Fear. Fear is as along as we don't know. Once we know, there is no fear. And remember its "Win or Learn but Never Lose".
-Markets basic nature is uncertainty and learn to accept that and be flexible
-Learn to accept losses and move on. Let not one trade's out come affect others.
All the above are my personal suggestions. Would recommend you to go through books and courses of Mark Douglas, Ari Kiev, Van Tharp, Brett Streenberger, Adrienne Toghraie, Nial Fuller etc.
For Trading System Development books you can refer to my answer on http://tradingqna.com/3228/developing-a-trading-system
All the best for your trading.