Day trading emotions

If you have read some of trading books available for purchase you would have noticed one major recurring theme: the emotional aspect of trading.

Is this because emotional people like to trade? Most likely not.

Most of the traders don’t consider themselves to be particularly emotional persons and they can definitely control their behavior in most situations. However, when trading, they might realise that the emotions start to appear and do take control of their trading decisions.

 Most of the novice traders do think at the beginning that as long as they were trading solid setups that made profit more times than not – why would you need to read about the emotional aspect of trading? Then they all go to stages and  ignored your trading rules and began to make decisions based on emotion

Recognize your emotions

I’ll give some hints so you can quickly recognize when the day trading emotions start to take control of you:

  • Start feeling cold shivers and your body stiff
  • You blame yourself for being such a fool and you feel frustrate
  • You start yelling at your screen
  • Keep asking yourself obsessively “how far could this go up/down”
  • Why did the stock reverse the moment you put your money into it
  • Start to play the reverse game : you become convinced that no matter what you are thinking of doing, if you will do the opposite it will make you money

How to deal with your day trading emotions

Remember That a Trade is Just a Trade: Trading is a game of probabilities. Your goal is to be right more than 50% of the time with your wins slightly larger than your losses . So, what do you need to do when you start to be aware of your emotions:

Take a break

When you took a trade and it didn’t go the way you wanted, take at least few minutes before making another trade. Take a step back, re-draw your chart and re-analyse it. Did you really enter at the right time or were you being impatient –  did you rush into the trade so you don’t miss a big run or did you anticipate a reversal at the support/resistance  lines which did not happen?

Take your time and do not over trade – it is not about revenge. Every trade costs you money and every trade puts you at risk. Don’t jump back into a trade just because your previous trade didn’t work out.

It Is Not About the Money

Don’t allow your mind to think about money when you are into a trade. 

Okay, trading is about money but your money management decisions must be made well before going into the trade. You need to decide how much risk you want to take and how much money you are prepared to lose before you open your position as part of your trading strategy.

Most day trading platforms do have a box that tells you realized and unrealized profits of every trade. You can look and see if you are down or  up in that trade. Knowing this could make you feel very uncomfortable and mess up you emotionally.

Trading should be based on patterns, setups and price action but not the counter that displays your points or dollar amounts.

So my advise is: Hide the profit and loss numbers!

Assess Your Risk Before Entering the Trade

When you enter a trade do consider your risks ahead of time.

This can be very simple: look at the typical intra-day volatility of the stock or currency. Looking over the last two days, how much does this instrument trend up or down in a half-hour?  Then think about how much you want to risk on this trade.

Conclusion

There are many books on how to manage emotions and trade in the zone and the above are simply a few tips to get you on your way. Keep telling yourself that a trade is just a trade – nothing more or less. You are trading set-ups that have a statistically higher chance of being profitable than not.

Take your time between trades – don’t just jump from one trade to the next. Figure out your risk before the trade and use the appropriate size. While in the trade you already know that you covered that base so there is no need to look at how much money you are up or down. Just focus on the price chart and trade the patterns you see without emotionally trading money.