daytradingskills

Emotional Trading

“What feels good is often the wrong thing to do.” – William Eckhardt
“The best traders have no ego. You have to swallow your pride and get out of the losses." – Tom Baldwin

Emotional ups and downs are pretty normal for beginner day traders. A good trade instantly transports them above the heavenly clouds and a trade that has turned bad converts them into believers of faith and prayer. Quite frequently, they are wishing things to happen as per their position rather than be able to take position according to the actual market movements.

Staying focused is an important habit exhibited by all successful traders. It means you are concentrating on the task of trading. You are looking for opportunity to enter and then exit as per your plan without allowing emotions to dictate your actions.

Emotions like fear and greed make you concerned about your profits and losses. If these emotions are too strong you begin making irrational decisions. For instance, excessive fear may prevent you from entering a trade when the opportunity arises, or to close a winning trade too soon. Greed can cause you to make trades that are too large or can cause you to wait too long for the highest high or lowest low. Don’t be surprised if you also find your ego entering into trading, making you stubborn. Emotional trading is dangerous. It is probably the single most major cause of failure. So, stay relaxed and neutral and stay with your plan.

Whenever you find that you are losing focus, try relaxing yourself and clearing your mind. Think about your trade plan; think about what the indicators are telling you; think about the market trend, its highs and lows for the day. If you are watching a 5 minute chart, switch to 10, 15, or 30 minute charts and try finding out what they are telling about the market and its trend.

Don’t worry if you catch yourself rolling in emotions often. Realizing that your emotions are interfering in planned trading is a useful observation. Regular trading practice as per your plan will help you perform better despite your emotions. After all, practice makes the man perfect!

Most traders are not emotionally equipped to stay disciplined without some technical tools. Let technical indicator signals help you maintain discipline and avoid impulse trading. The best antidote to emotional interference is trading according to a well thought of trade plan and sticking to it. Along with a good risk management scheme, you have very little chance of failure. You can learn another important lesson by reading Become a graceful Loser.