Why Objective Stock Trading Is More Reliable Than Subjective Trading

Updated on November 22, 2019
Glenn Stok profile image

Glenn Stok writes about investment strategies and controlling risk that he has perfected with 45 years trading stocks, options, and futures.


Your trading decisions can be negatively affected when subject to feelings. That's why you need to remain objective with preplanned strategies.

When you are subject to market moves, you become biased. This subjective viewpoint can negatively affect decision-making because it’s based on your feelings and opinions rather than preplanned strategies. You'll find it easier to stick to buy and sell decisions that you had planned ahead of time.

I find it’s always best to plan your strategy and stick to your plan. That’s staying objective, and it's a more mechanical method of trading. It eliminates the emotional feelings of fear and greed that occur with subjective trading.

Once you understand this, you’ll know how to avoid being a victim of subjective thinking. To get started, here is a list of synonyms for objective and subjective:


Objective vs. Subjective Trading

One can only view the market objectively when not involved in a trade. That is when we have a more obvious vantage point.

Once invested in a trade, it’s not easy to remain objective, unless we have an exit strategy. We are subject to the whims of the market, and therefore we will tend to let emotions get in the way.

That’s because we are too deeply involved with the trade. It becomes challenging to continue to have a clear head and make objective decisions. A clear and detached objective view is replaced with subjective emotions related to the investment.

While a trader is in the market or a particular stock and watching the fluctuations of his or her account, subjective rationalization interferes with sound judgment. We try to rationalize the decision for our next move without realizing that fear and greed are guiding us.

What Happens When You're Subject to Fear?

An intelligent analysis of the market is done better without being invested in the outcome. As long as there is no fear of losing, you can analyze the data and determine what to expect the market to do.

That means you can consider what may happen based on current market conditions. If, however, you already are involved in a trade, then you're doomed to a tendency of being subjective, hoping for the market to do what you want it to do, rather than what is expected based on analysis and due diligence.

What Happens When You're Subject to Greed?

This is a terrible position to be in because this is where failure to be objective can get in the way of success.

How often have you had a trade go against you, and you think to yourself that it will turn around, so you wait? That’s not being objective at all. You’re letting your emotions control the situation.

Your decision to do anything is subject to your greedy feelings. You can’t admit that you may have been wrong, and you let a losing trade get even worse.

Another thing subject to greed is when you have a nice profit, and you don’t take it. You leave the trade hoping for more. You think to yourself that if it’s doing so well, it will continue. That’s greed!

Stocks always have only a 50% chance of going higher. That never changes. Just like when you flip a coin, it has a 50/50 chance of being heads or tails. If the coin comes up heads five times in a row, it’s still only a 50% chance that it will come up either heads or tails the next time.

It’s the same with any investment. If a stock continues to climb, it still only has a 50% chance to move another tick higher. Your greed keeps you from selling and taking a nice profit, and you end up giving some of it back.

We need to have some way to remain objective at all times when involved in a trade.

How to Remain Objective by Trading Mechanically

Trading mechanically helps avoid being subject to emotions. It helps to be consistent with successful trades and not become subject to changing market conditions. It means to have a strict method to follow, no matter what happens.

If we have a strict strategy and follow that method without letting our emotions, greed or fear, change our plan, then we can remain objective, and we won’t allow the market to affect how we handle our trades.

That method is being mechanical. It follows a specific procedure for execution of managing an active trade to completion, either with a gain or a loss.

Mechanical trading requires strict adherence to these rules:

  1. Plan your entry price and wait for it.
  2. Plan your exit strategy and obey it.
  3. Plan any other triggers that will dictate reasons to get in or out of a trade. And stick to it when it happens.
  4. Decide what risk/reward you want and structure your portfolio accordingly.
  5. Use stop losses to control your mechanical behavior.
  6. Admit when you’re wrong and get out. This one is hard to do persistently. I still fail at it from time to time.
  7. Pay attention to your overall exposure. Keep your trades small enough so that significant market moves don’t force you out.

This is the only way to avoid fear and greed. It took me many years to learn this. It took me even longer to learn to be strict about it. I eventually discovered several rules that help maintain an objective view of my investments.

Rules for Trading Success

Trades not taken are inherent to trading success. If a trade doesn’t look good, don’t do it just because you hope it will work. Here are several rules to keep in mind:

  1. Patience: Be patient and wait for a more reliable trade to be available. Trade selectively.
  2. Avoid Hoping and Wishing: Don’t enter or stay in a trade just because you hope it will work out. Do your homework; analyze the company, and trade based on performance.
  3. Loyalty: Don't be loyal to a trade. When you think you’re wrong, close a position. Get out! Don’t let a lousy position get worse. It may turn around and come back to you, but that’s just wishing and hoping.
  4. Size: Don't increase position size just because you’re making money. Keep trading the same amount. If you keep increasing the size, that time when you eventually lose will end up being on a bigger trade, with a more significant loss.
  5. Frequency: Don't trade just to trade or just to get another small gain. Remember the rule about patience.

What have you learned?

We can suddenly become subject to assumptions and unrealistic expectations when we are in a trade.

The only way to have a clear objective strategy is to plan the trade ahead of time and stay mechanical while managing it.

The results will be better, and you’ll have a decent chance of being profitable.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

© 2017 Glenn Stok


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