Many people underestimate the importance of a good trading mentality. There is hardly any job with so many ups and downs as in trading. In trading almost everything is possible in a short period of time: you can make and lose a lot of money over and over again. This requires some getting used to. Having a good and confident trading mentality is therefore just as important as education. Many traders have hard times sleeping and making decisions because of the constant fear of losing money. In this post I will try to tutor you so you can develop your own trading mentality just like the pros.
Emotions while Trading
Emotions and trading in the stock market don’t go together! It is never a good idea to become emotionally invested into your trading activity. Of course, you should still be able to enjoy your time trading and making money. But for most people the trading losses are felt more than the gains. This can lead to bad habits and emotions influencing some trading decisions. While trading, you should always try to stay as rational as possible and not let emotions influence you in any way. I know that this is much easier said than done. But with a few simple tricks things can get much easier.
How to keep Emotions out of Trading | Trade emotionless
While risking hard-earned money people naturally act different and emotional. To make smarter and more profitable decisions it is important to develop some good trading habits/routines to keep emotions out and start to trade like a robot. (This may sound weird at first but believe me it is for your own best). Here are some simple but extremely useful tips:
1. Setting goals before the entry. A key factor to rational decision-making is to predetermine all your important factors: adjustment points, maximal draw down, exit level and exit plan. Write these points down before every entry into any position. Before the entry you will be able to think and handle rationally because you aren’t risking anything yet. Therefore, you will easily work out good and logical goals, when to adjust and exit. This will eliminate any decision-making points while in a position.
2. Now it’s all about sticking to your trading plan. The best way to do this is by setting alerts/reminders. You should then get used to executing your plan as soon as possible after you get your alert. Nowadays most broker platforms even have implemented alerts/reminders with many different settings.Often they will just send you a quick mail or other message as soon as the requirements of the alert get fulfilled. This relieve’s you from constantly having to check your positions and gives you time to do and think about other things. The important step with these alerts is developing the habit to execute your plan mechanically after you get any form of message.
3. To take it even further many broker platforms have options to set special kinds of orders which can be executed if certain criteria gets fulfilled. This is very powerful. You can enter your whole trade plan for a certain position from start to finish before your entry. These orders will then automatically close/adjust your positions if your alert requirements get hit. This doesn’t only take emotions out of the game but rather the whole person. This can automate some of your trades completely. You wouldn’t even be required to check your position once. With this method there would be absolutely no possibility for your emotions to mess up anything.
4. The last tip for this article isn’t only important for keeping emotions out. This tip is key for being profitable! The tip is KEEP POSITION SIZES SMALL. It can not be said often enough. Don’t risk more than you are able to lose. No one would be able to sleep if they would risk 40% of their account every other day. If you keep your position sizes small it wouldn’t even matter too much if you lose on one or even more trades. This is extremely important to being profitable! (More to position sizing later)
I really hope that you could learn something from this post and could get some helpful tips to help you keep emotions out of your trades.