For some, this may be a bit of a tough read. What I’m about to touch on is a sensitive spot for a number of traders and traders-to-be. The topic is almost taboo. It's about the challenge that the majority of traders are crippled by…any guesses? It’s emotions.
We all get emotional from time to time which is perfectly normal, we are humans after all. Fundamentally, being emotional is an important part of life. Regrettably, emotions while trading are sinister. It is arguably the one thing that will hinder ones trading carrier. I can’t begin to express to you how many traders I’ve connected with over the years who suffer from this debilitating challenge. As a trader, one of my primary focuses and supreme disciplines is DO NOT GET EMOTIONAL!
I have had countless discussions with people that have all the ability in the world to become good traders but are cut short because their emotions get the best of them. Recently I had a conversation with a trader that was failing his strategy primarily because of his emotional state. His read of the charts were fine. His ability to find stocks that were trending was fine. His ability to understand key elements on how to trade were intact. Yet his emotional state was off. The problem that it afforded him was not just one losing trade but a host of losing trades. His emotional state carried over from position to position. One bad, emotional based trade that fail pollouted the next 5 trades he took.
"One bad, emotional based trade that fail pollouted the next 5 trades he took."
There wasn’t anything that could be said to deter him from his emotional funk when trading. Over and over I asked him why he did what he was doing and he continuously acknowledged that his mental state was off. I strongly suggested tabling trading until he had his emotional state under control. Yet he never did.
Now I’m going to ask you: does this sound familiar? Have you been in a mental state that has killed profit potential?
Based on being COMPLETELY honest with yourself and the questions I just asked, you should have answered “Yes”. Just so you know, I am not exempt from emotions. In fact, I have also become very emotional while trading. I have also had multiple streaks where my emotional state was in the shitter and my P/L confirmed it. Truthfully, finding a perfect trading formula is a long road but over the years I have been able to completely change my mindset when trading. In the process, through researching my own historical trading data, I have been able to pin point something very important about trading and that is this…trading successfully is MORE about ones emotional state.
Of course having a strategy coupled with a firm understanding of risk management is paramount, but a traders emotional state and success are perfectly correlated. In fact, if you’re not in a sound/flat emotional state you run the risk of doing things you generally might not do. With that, when you trade while in an emotional funk you actually take on an added level of risk.
Here is a simple example: You’re in “Trader Mode” (no emotions), you can clearly and easily see your set up, enter a position, manage your risk, and you sell out at your profit target. All this can be done without too much thinking. You can end up trading profitably and you end your trading day in the Green. DONE! This example is where new traders need to get to. The “trader mode” is where ALL traders need to live!
The “Emotional Trader” approaches the market differently. There are so many reasons why the emotional trader shouldn’t trade its crazy. I’ll sum it up by simply saying this, if you’re not in a sound emotional state to trade…DON’T TRADE!!! It will be cheaper to back off of trading to work on your emotional state then to continue to trade, trust me on that! This is exactly what I try to communicate to my student traders, both newbies and vets. Trading from an emotionless position is one of a few things that sets EPIC traders apart from the rest. Something that is achievable if one was to commit to the process.
“if you’re not in a sound emotional state to trade…DON’T TRADE!!! “
There are those traders that are more focused on the trade and potential downside, and then there are those that are focused strictly on the technicals of the trade. It’s the latter of the two who are most likely to make more sound trading decisions. Time and time again you’ll hear about the importance of managing risk. Managing your emotions is a form of risk management. Don’t take this topic lightly. Being overly emotional when trading could be the difference between trading for the next 6 months or the next 20 years. If you’re are in the camp of traders who struggle with emotional states while trading, you need to reach out and find yourself a mentor. At J. Lewis Trading we are dedicated to helping people master all aspects of trading and emotions is one of them.