Psychological factors about the trading are well covered in the books, articles and in all sorts of media information and in this article all the ideas about emotions, caused by the “mad” movements of the market, probably will not be new, but solutions how to deal with them for some traders could be a discovery. I am not pretending to be a wizard of the market, but what helps me could help others as well.
Let me first express my opinion, what any trading strategy or investment plan, no matter how good it is, is completely useless without proper execution of that plan. I think here majority will agree without any big argument. But another idea – that not very good strategy, but with the proper execution of that strategy could bring good results – will bring a doubt in our busy heads. And I would agree with you, despite I personally know one Forex market trader who’s strength is discipline, not the strategy. And he has excellent results. I think he is an exception. I still think that for successful trading you need a good strategy and discipline to execute that strategy.
Emotions, emotions, emotions… Trading is full of them, movement of the market based on them. Our rush to buy or sell sometimes overflow our plans. And later we question ourselves: “Why did I do this or that?” What is driving us to get into the market when we are not prepared and exit on completely different prices, which completely disagree with our plans? I think it is two major factors: greed and fear.
Greed – we want more! When market goes as we expected, we believe it will continue for very long time. We forgot that everything changes. Fear – we afraid to miss the profitable move or to loose the money. And until fear and greed will dominate us, our results will be very unstable. And worse: if our money management is not the strongest point (usually for emotional traders this is the weakest point), will soon will be out of money, before we even had a chance to establish ourselves as a trader.
Here I am going to give some solutions how to overcome emotions.
First let’s start from the trading strategy. I am sure everyone has got one. If not, here my first advice – find one. Do not start “make millions” without a strategy. How and where? In the book stores, magazines, internet. There are plenty of it. Just look around and I am sure you will find lots, but choose just one. Just one at the time. Don’t start trading six strategies at once, you will get confused.
So, let’s say you have one. Now I have one question: where is your trading strategy and rules? In your head? On the screen? On the paper? Worst answer is – in my head. And here is my second advice – don’t be lazy and accurately write it down on the clean paper. Write all your strategy, where you going to enter, where you are going to exit. About how to write a plan or strategy should be separate discussion, so here we are not going to do that. Advice is – write YOUR rules and plans, and strategies.
Next step will be an execution of the plan or strategy. At first it looks simple, you see the price, you know at what price you want to buy, where are you going to take the profit, where you will stop your position. Good. Just do it. Well, reality is – market does not know about your plans and even worst, market is living its own life and definitely, market does not care about your money. Before you go any further, here is my next advice – stop and think. Do you really want to be a trader? Are you ready to accept losses? If your answer is yes, I would suggest one interesting thing to do, before you enter the trade:
Find some quite place and give a promise to yourself: “I am going to execute my trading plan and I will accept any consequences for my actions” This could be your everyday some sort of prayer, until you start following your plan without any exceptions. And when you find yourself in the position, where you do not know what to do, repeat those words for yourself. It will help you to strengthen your discipline. By repeating to yourself , that every action you take is absolutely your responsibility, will make you realize, no one is guilty for your mistakes or losses. Just you. But it is important at this point do not blame yourself. Blame is simple weak point, in other words – another emotion. Instead of blaming yourself, analyse what have you done wrong, maybe is possible to improve trading strategy or plan, and write it on a paper. And when you find mistake of your actions, or hole in your strategy, simply next time do not repeat that mistake, improve your strategy.
By repeating to yourself: “I am going to execute my trading plan….” you will remind to yourself about a plan, which you created and at least you will look at it. That definitely will stop you at least for a moment.
Even if we have a plan, it is very hard to take losses. I know. We all have got a hope, we all believe in some sort of miracles. But at the same time we know, successful trader simply follows it’s plan, unsuccessful one has a hope. Do not be afraid to take loss. One loss is not the end of the world. Even few of them in a row. If you are sure that your strategy works, stick to it and soon you will have very positive results. But how to cope with the loss mentally?
Next advice will be – find the time every day for some physical exercises. Any physical exercises will help you to feel better. Do not sit in front of the screen thinking: “I could do this, I had to do that…” Body likes to move and it will give some stress relief. Do not be afraid to get away from the screen. Do not think too much about market. There is certainly more life than markets.
Here is just very few advices how to overcome emotions, but for me they are most important. We did not discussed situations, where after loss we have got enormous desire to get back into the market and make profit (usually it leads to another loss). And certainly did not discuss any reasons why those emotions are taking place. By my opinion that is important, but more important to realize the fact: emotions are part of our lives, even if we do not know why, and dealing with them is the road to success.
Article by Tomas from investija.com
