In trading most difficult job is controlling your emotions.
Every trader at one point or the other feels like searching for the solution to the question – How to control emotions when trading? We know that emotions are the biggest impediment to our trading success, but then also we let our emotions run our trade and sometimes end up in big losses.
“The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading”
– Victor Sperandeo
Most of the traders understand that trading is a game of probabilities. We know that we should control our emotions and stay detached from the results of each trade. We have also read dozens of trading maxims that sound like these.
* Don’t marry your positions.
* Don’t be affected by fear and greed.
* Be in the zone.
Trading requires focus. Trading setups are fleeting. Hence, it is crucial for day traders to know exactly what to do to control their emotions while trading. They do not have time to ponder on vague statements.
Six Criteria to Take Emotion out of Trading:
Entering into mediocre trades will yield mediocre results. If you only trade the best opportunities you will trade less but you will have greater success. This will put you on the road to fearless trading and help you to simplify the trading approach. Write down your rules! Do nothing unless every rule is not satisfied. When you consider a stock, look for a reason to avoid the trade. If you can’t find a reason to avoid it, then you have a trade worth taking.
Buy With Confidence
The rules that you trade with have to have a foundation of success. You have to believe in your rules or you won’t believe in holding the stock through the shakeout periods in the longer term uptrend. Analyze and test the strategy until you have proven to yourself that it works. Then trade it slowly without a lot of risk so you can gain a greater level of confidence that it works.
Don’t Watch the Scoreboard
Athletes don’t spend a lot of time watching the scoreboard during a game, it only matters when the game is over. In trading, the scoreboard is the profit and loss figure for your account. If you focus on the scoreboard it is likely that you will lose sight of what is happening in the game. As a technical trader, all that matters to me is what the chart is telling me.
Plan the Trade
I find it helpful to predict pull backs. My rational side knows that stocks can not go straight up and that they must suffer pullbacks to recharge buyer interest and shake out weak holders. My emotional side feels fear when those pull backs happen. If I plan my trade and build in expectations for the counter trend pull backs I can deal with them better and have a greater chance of not succumbing to the fear when they do.
Plan Your Losses
Before you enter a trade, figure out what needs to happen for you to consider the trade a loser. For me, that is a move through chart support; I plan to exit the trade when the stock goes through a psychological floor price on the chart. Understanding where that point is requires some experience and knowledge but once you know how to identify support on the chart, plan your losses.
Don’t Fall in Love with Stocks
I don’t want to know too much about what a company. I have found that the more I like a stock the more likely I am to not listen to the message of the market. There is a lot of bias in the information that we receive about companies and what they are doing. The ultimate arbiter of truth is the market itself; we should have a greater faith in the opinions of thousands of market participants than a few biased sources of information.