The hardest thing about trading is not the math, the method, or the stock picking. It is dealing with the emotions that arise with trading itself. From the stress of actually entering a trade, to the fear of losing the paper profits that you are holding in a winning trade, how you deal with those emotions will determine your success more than any one thing.
To manage your emotions first of all you must trade a system and method you truly believe will be a winner in the long term.
You must understand that every trade is not a winner and not blame yourself for equity draw downs if you are trading with discipline.
Do not bet your entire account on any one trade, in fact risking only 1% of your total capital on any one trade is the best thing you can do for your stress levels and risk of ruin odds.
With that in place here are some examples of emotional equations to better understand why you feel certain emotions strongly in your trading:
Despair = Losing Money – Trading Better
Do not despair look at your losses as part of doing business and as paying tuition fees to the markets.
Disappointment = Expectations – Reality (more…)
You can be super motivated to trade, filled with deep optimism, have millions of trading capital available, and a solid trading strategy, but if you don’t devote your full concentration to the trade that you have on at the moment, you will lose money.
It’s essential that you learn to concentrate while executing a trade and scrupulously monitor the market action during a trade
Why is concentration difficult? While in school did you have trouble studying in a noisy library? It’s easy to concentrate when we are in a quiet room and when we are calm and at ease. But trading is often chaotic and full of stress. It’s easy to become shaken and lose your ability to concentrate. When you aren’t fully focused on your ongoing experience, it’s easy for self-doubts to creep into your consciousness. You may start having second thoughts and may want to sabotage your trading efforts.
The more you can stay focused on your ongoing experience, the more you can trade effortlessly and skillfully. But how can you concentrate more easily? (more…)
I was recently asked by a member to share my thoughts on how I manage the high stress levels and how you keep emotion out of the mix. I will get to the the stress handling in a second, but let me start by addressing “keeping emotion” out of it.
While many traders say they can keep emotion out of their trading, I believe when it comes right down to it they’re being disingenuous. Unless those same traders really employ a completely robotic trading system which requires absolutely no supervision or control, that simply cannot be true. This is one of those things that I’ve seen many traders say to impress others, but in reality it just isn’t possible or even realistic.
When you have real money on the line and have also invested your own time and energy beyond that, emotion will play a significant role in every decision. After all, none of us are trading robots! We all have feelings and egos and therefore our trading and investment decisions will be impacted from those even in subtle ways that you may not even realize. The key is to learn how to use those emotions to your advantage. For some of you, trading completely contrary to your logical fears is an excellent way to make big money in the markets. Just look at all of the people who went short hoping for Hindenberg Omen type crash in August and who’ve been fighting it every step of the way!
As far as coping with stress, we all have to develop our own methods. But, this is what I’ve learned over time. For me, stress comes primarily from three things:
Not having a plan and being out of position in a challenging market
From not staying on top of my work and not sticking to my rigorous routine (usually from unforeseen events like technology issues or personal issues that all of us experience from time to time)
Stress and pressure I place on myself in hitting my daily, weekly, and monthly goals especially when I’m not performing up to my expectations
So, how do I cope with these? Here are a few thoughts… (more…)