To become a successful trader, you have to stay rational and emotionally detached.
To trade successfully,you have to turn this around: Embrace the short-term pain and seek long-term emotional gratification!
Most of new traders ride an emotional rollercoaster, feeling on top of the world after a win, but down in the dumps after a loss.
If I was wrong, I would consider it as an attack on my ego and I would take unwarranted entries in an attempt to get back the money lost. I wanted to feel whole again! If I was right, I would feel invincible, thus taking on excessive risk. To put it another way, I was an emotional mess – a walking time bomb waiting to blow up my account!
In contrast, most professional traders stay calm and relaxed even after a series of losses. They don’t let the natural ups and downs of trading affect them emotionally.
As a winning trader you’ll want to do the same – stay composed and as unemotional as possible.
Good traders have learned at one point in their career to free their minds of the emotional implications associated with mistakes and failures. They are flexible and have learned to thrive in uncertain environments, just like reeds that bend with the winds without breaking. They are not overly attached to money and the absolute need to be right. In turns, this engineers the kind of market performance they enjoy year after year.
One the other side of the coin, when things are going well, it’s normal to feel excited or like a supreme being. Nothing can stop me now, I’m invincible! It’s this overconfidence that can certainly lead to problems. Any time things start to go your way, you feel safe, and you think there’s a little more room for unnecessary risk. Your euphoric state clouds your judgement and you figure that things can only get better. When times are golden, it’s very easy to forget about your plan or process.
This emotional roller coaster most often finds a home with the novice trader.
A novice trader is more likely to risk too much capital during a single trade and risk management goes out the door. If that “big risk” turns successful, blissfulness follows the victory. But with a disastrous loss on that “big risk,” the joy transforms into a feeling of utter failure.
The key to curbing, or at least minimizing, your losses is proper risk management. Smaller loses are definitely easier to stomach than those monster losers.
Trading, like any high-performance endeavor, is a mental game where we are required to pay attention to the present moment. But this is not enough! We have to stay present in a way that ensures that we execute our methodology flawlessly so that our results are in line with its capabilities. In other words, we have to learn to dissociate ourselves from our thoughts and feelings!
What can you do to control your emotions?
The source of our problems – as traders – is the very thing that is our greatest asset: Our minds! Taking a trade too soon; taking it too late; not taking a signal at all; not putting a stop in; moving our stop; not taking profits, or taking too little of it, all these trading errors result from our thoughts.
1. You can’t win ‘em all.
For one, understand that you’ll win some and you’ll lose some. At times you’ll be profitable in your trading, and at other times you won’t be. Coming to grasps with this simple fact will definitely help.
Emotions are simply embedded in our human nature. Simply stating that one could trade without emotions is like saying that one could go about without having thoughts. It’s impossible!
2. Keep a buffer.
Second, trade with enough money to allow for a buffer when those losing trades come. Be ready to handle the losses, because they WILL come! That’s just how the market works.
3. Do Meditation
Meditation allows us to escape that mental prison in such a way that it becomes clearer to us that the way we think directly influences our experience of the world. It shows us that there is more to our experiences than what our thoughts suggest.
Trading can cause you to become emotional and lose control (and money), but the most successful traders can minimize those peaks and valleys, resulting in a calm and rational trading mind. That kind of mind ultimately leads to increased odds of financial success.