At one time or another in your trading career, you will not doubt encounter the pitfalls of emotional trading. Here's one traders story.....
When I just started trading on my own
I lost a little over $10,000
the second week. I had made the full-time jump and therefore was
desperately emotional to make it work. Looking back now, I probably did
things I would never do today. I pushed trades into the market when it
wasn't a good time to trade, I let trades run up huge losses without
stops, and took any profit I got quickly.
I had never been an "emotional trader" but all of a sudden I was stuck. My emotions had got the best of me. So what changed right? Well, I went back and started to
revisit the roots I learned trading for Deutsche Bank that I'm going to share with you below.
The Fear Of Missing Out (FOMO)
Here's the scenario:
you've been sitting on the sidelines while watching the market rally
nearly 100% off the March lows from 2009. Are you itching to jump in and
buy? Are you frustrated because you are missing profits that others are
making?
Many traders I've been talking to feel this way right now and it's
not uncommon. We have all watched the market rally much further than
anyone expected. And, it's not just the swing trader who feels this way.
Day traders are feeling the heat as a trending market offers little entry opportunity.
Even though it may be hard, sitting on your hands can be one of the
most difficult things a trader NEEDS to learn. If fact, I really do feel
like it's a requirement for a successful trade - one lesson I learned
quickly during my first few weeks trading at home. We have to treat trading like a business not a hobby - and sometimes waiting for the right entry is part of the business.
Treat Trading Like A Business
After talking with some former traders whom I worked with, I realized
I was doing 1 thing completely wrong! I was blindly waking up each day
and trading with no real direction - how stupid of me right? Sure I had
traded for the banks and knew what to do - but being at home was
completely different.
What helped me get over the hump was to
treat trading like my own personal business. I wrote a business plan,
had specific achievable goals, and daily activities to keep my emotions
out of the way. What this helped me do was to remove my emotions from
the
traditional Fear and Greed cycle.
The trader who can remove themselves from this cycle and treat it
like a business is much less likely to force trades out of boredom or
because he/she feels an internal pressure to be productive. Case in
point - this is where I went wrong when I lost that $10,000.
Let's Control Those Emotions Shall We
Productivity can be extremely helpful when starting to trade. If you
are bored then you are more likely to make stupid trades. If you are
business searching, analyzing, reading, etc then you are more likely to
find amazing trades with great risk/reward.
Here are 5 practical tips to help you learn to be productive and control your emotions:
1. Learn Something New About Trading.
Maybe you have wanted to learn more Iron Condors or Credit Spreads, or
maybe you have been wanting to learn more about RSI and MACD indicators.
Well, stop thinking about it and schedule some time to sit down and do
the hard work - pick up a book, get some coaching, watch a video
tutorial.
2. Perform Some In-Depth Market Research.
You have to be curious about something that's happening in the market
right now right? Down times in the market can be great opportunities to
do some intense market research.
3. Paper Trade Until You Fall Over.
I STILL paper trade each week. I test out new strategies, new
indicators, new ideas with paper money first before I ever put real
money to work. Focus on a particular setup and paper trade it on a
simulator 10 or 20 times. A great new tools is thinkorswim's ThinkBack
trading that allows you to "replay" an entire day of trading just as if
you were reliving it all over again!
4. Write A Trading/Business Plan.
If you don't have one you need one and if you have one you need to
revise it monthly. These can always be improved. Take a section of your
plan and think carefully about how you can improve it, and then do it
already!
5. Analyze 5 Completely New Charts.
Pick out stocks or ETF's you'd like to trade and analyze
the charts
carefully, making a list of the bullish and bearish reasons to trade it.
This will help you
think carefully about the trade and remove your
emotions completely after making the list
Source: https://optionalpha.com/trading-psychology-5-tips-to-help-control-your-emotions-when-trading-options-9866.html
