Did you ever consider the wide array of emotions that will devastate your trading account? Human emotion can be hard to control (especially at first). Read on to see how you can learn to master your emotions and avoid blowing up your account.
Top 3 negative emotions
#1 Fear and adrenaline when in a trade
Fear and adrenaline are major emotions that you will encounter at some stage of your trading career. The fear of failure or fear of losing money are examples of emotions that will devastate your trading account.
#2 ‘Homerun’ mentality
This is a big one – we sometimes try to hit the ball out of the park. Instead it’s better to take smaller gains and get to first or second base regulalry. Yes you may hit a homerun every now and then but it’s much more riskier to be trying to do this with every trade. Make 10%-20% and get out with a profit.
#3 Trying to make back losses via revenge trading
Imagine you’ve just had a big loss (due to not following your trading rules) and now you’re gunning to make it back. This is very dangerous as it loses your focus and most likely leads to more losses. The fear of missing out leads to impulsive entries, and a bad entry makes it very tough to be comfortable in a trade).
It’s better to miss out than to lose. You will miss plays, develop good habits and act accordingly to limit your revenge trading.Being stubborn is the single biggest mistake beginner traders make. Cut losses intelligently! Click To Tweet
Top 3 helpful solutions to avoid blowing up your trading account
The above emotions can be managed and most of the time can be controlled if you have a plan. Having a plan means being prepared and knowing what to do without having to think about it. Here’s some solutions to emotions that will devastate your trading account. See some of these excellent books to help keep your emotions in check.
#1 Admitting when wrong, cutting losses intelligently
The first step is ensuring you know when you’re wrong and accepting as part of the life of a trader. No trader is right 100% of the time. Check out the top traders on profit.ly and see their performance figures. Some are right 70% of the time (win/loss ratio) yet have a small winning dollar %, while others have a lower win/loss ratio but bigger dollar gains.
#2 Learn to trust yourself (fear of losing leads to bad decisions)
Losses are part of trading – no-one has a 100% trading perfect. don’t worry about if you lost or won, worry about whether you executed your plan (if you are still losing consistently you’ll need to review your strategy). Remember, hold and hope is not a strategy.
Also, it helps tremendously if you can become financially self-sufficient. Before this happens pressure to make money can also increase your losses. Pressure to perform can also make cutting losses very hard. Write down a plan of key goals (both short term and long term) to help you focus and stay on track.
#3 Hide the unrealised profit/loss column on your broker software
This is a great tip from Tim Grittani who says he started worrying less about the actual dollar amounts of each live trade, but more about whether he was following his plan. Hiding your unrealised profit/loss can also help keep your emotions on check and focus you more on the chart.
The longer you trade, the fear/adrenaline/excitement will start wearing off and you will be able to better control your emotions.
What are you doing to control you emotions while trading? Comment below to share your experiences.
I’d like to thank Tim Grittani for his excellent DVD which helped to write this post.