An In-Depth Guide to Managing Your Trading Emotions
If you’re serious about your trading I’m sure you already treat it like a business. You have a trading plan, you keep meticulous records, you study the markets each evening and on weekends, but you still may not be making consistent money.
Stop and think for a moment…
What’s your most important activity in your trading business?
What pain do you have associated with that activity?
Let’s face it, the reason we trade is to make money. Yes, there are challenges and obstacles that help us better understand ourselves and grow as individuals, but the bottom line is to generate positive returns and make money.
Ok, so the goal is clearly defined. The most important activity then, is to execute a profitable trading strategy. (More on determining the profitability factor of your trading strategy in next week’s post)
The Road to Consistently Profitable Trading Starts Here…
You’ve probably heard that consistently profitable trading is more a function of mental strategy than it is trading strategy. And I know you’ve heard me stress the importance of keeping your strategy simple. So, it may surprise you when I tell you that most trading strategies have the ability to be profitable. It all comes down to execution.
Most traders spend their careers bouncing from strategy to strategy instead of honing their focus on one method. The reason this is important is because focusing on a method allows us to master not only the strategy, but the emotions and decision making skills that surround it.
Have you noticed the more you know about a system, the simpler it is, and the more you’ve made it your own, the better your trading results are? That’s because you’re able to better execute the strategy.
What pain then, is associated with or stopping you from executing your strategy effectively? Your emotions.
The emotion of fear is the #1 culprit that keeps most traders from reaching the level of consistency and profitability over the long term.
Does your heart beat faster as you’re about to enter a trade? Do your palms start to sweat when you hear the sound of your order being filled? Do you feel like your trading plan goes out the window as soon as you see the price ladder start to move and you impulsively exit, or break your rules? Let’s look at some ways to overcome your trading fears.
Getting Over the Fear
You absolutely must have conviction in your system; belief that over the long run, a positive outcome will result. There’s only one way to gain this conviction and that’s to test. Test, test, test.
You want to build a data set that you can go back and analyze. Observing results over a larger period of time then adds to your confidence and ability to execute effectively.
The more testing you do and the more data you gather (through both live and SIM trading) the more those feelings of fear, attachment, and uncertainty will diminish. What you are really doing is removing the human discretionary element from your trading and turning it into more of a mechanically structured framework.
Why Experienced Traders Lose
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