Emotions help us to take action so that we can survive, avoid danger, make decisions and help us comprehend others. Emotions are created and controlled by the levels of different chemicals in your brain. It is the way our brain gives meaning to bodily feelings based on past experience. Different core networks all contribute at different levels to feelings such as happiness, surprise, sadness, and anger. Emotions are controlled by the levels of different chemicals in your brain. When you avoid emotional trading you will stop breaking your rules, stop revenge trading, stop doubting your strategy, and over-trading.
Emotions have a certain power over our thoughts and appear prior to our thoughts. This is helpful in situations where one would be under imminent threat. In a situation like this, there is no time to think and instead, emotions take over. Emotions trigger instant behavioral responses in split seconds, preventing negative outcomes. This is why emotions support decision-making. They serve as a foundation of motivation to select and take proper action.
The power that emotions have over us as human beings affect our decisions. This is seen time and time again with day trading. Emotions such as anger disappointment and greed are powerful emotions that if not controlled can interfere with your day trading decisions. Emotional trading is when a trader lets personal feelings and emotions impact their decision-making.
Don’t Fuel the Fire
There already are a lot of risks when it comes to day trading just out the gate. But when a day trader buys and sells contracts going off of impulses; they just increased their risk factor. The moment you let emotional trading take over and you break away from the fundamentals you put yourself at risk. Fundamentals are the keys to success in day trading and once you walk away from the proper technique you expose yourself.
You just learned that the emotional part of our brain is very powerful. It will force a decision until the logical part of our brain intervenes. You have a strategy when it comes to day trading; in which you learned to manage risk and read charts. Don’t fuel the fire when you feel a negative emotion; check your ego. You need to fall back and become self-aware so that when these moments that the emotions are about to take over you can regroup and counter your response. When you avoid emotional trading your decisions are based on logic, facts, and numbers.
Some people will see the market is going up quickly so they immediately purchase a call with the anticipation the market will continue to go up. They get into the mindset that the train has left the station and I have to jump on it. But what mostly happens in scenarios like this is that the market quickly shifts and now goes downward. The day trader that enters FOMO trades typically does not make a profit and most likely loses money consistently. The thing to remember just like that train came and went there will be another train and other stops. Don’t make an emotional trade with the should have, could have, would have mind frame or you will have more losses than wins. Emotional trading will destroy a large account and will definitely not let a small account grow.
Fear is a natural reaction to a perceived threat when it comes to day trading; the threat is the potential profit or loss. Fear may make a trader get out of a trade too early or not place a trade at all . But the important thing to remember is you miss 100 percent of the shots you don’t take. Quiet down the noise in your mind if your strategy and charts are telling you to enter or exit on a trade rely on that. Emotional trading hurts traders or investors by letting their personal feelings and emotions impact their decision-making. During the trading day it is best to keep your mindset as clear as possible in order to be able to interpret what the charts are showing you .
Greed is another emotion that affects your day trading plan. It is often said that greed and fear are the true motives behind market behavior. These emotions fuel an intense and selfish desire to want more; when it comes to day trading it does not change. A day trader may hang onto a position that they knew they should have exited based on their training but what happens? That thought enters their head “Maybe I could make a little more”. So, they hang on and instead end up losing when they could have originally walked away making a profit. Not having your day trading emotions in check fuels your minds instincts to underestimate risks associated with your trades and is one of the main reasons why investors make poor decisions.
Revenge is the act of retaliating to get even and this can be seen in day trading as well. A day trader placed a trade they thought would have been profitable but lost. Without the day trader taking the time to think about the next move they enter another trade to get even with the idea; “I’ll get my money back”. Sometimes in a revenge trade, the trader will increase contract size which in the end they end up losing even more money. Emotional trading can affect the day traders’ psyche and can take over rational thinking during times of stress and lead to panic.
Extinguishing the Fire
You can’t control when emotion will arise but what you can do is put a plan in place to avoid emotional trading. Set a profit target and put stop losses in place to take emotion out of the process. It would also benefit you to set a number that you are comfortable losing. Set a target for profit as well when using your chart use previous day zones to help guide you when to exit. If you hit the profit target act as if you have just been handed the baton in a relay race and get out quickly. If you hit your loss number pack it up it’s time to call it a day.
The way a master of their craft gets better is by practicing over and over again. You can practice these techniques by going into prior days into your think or swim platform. This way when it’s time to confront emotion in live day trading you are successful. Getting better at something takes time and effort. It is important to take calculated risks and learn from the winners.
Summary: Overcome Emotional Trading
Emotions give our lives meaning, and life without emotions is dreadful to envision. From the joy of success to the pain of defeat, emotions color our lives in deep ways. Remember not to fuel the fire of negative emotions like greed, fear, and revenge. You learned what you need to do to extinguish the fire of emotional day trading. When it comes to humans beings. Money, greed and fear can be as powerful if not more powerful than any other human feeling and must be kept in check in order to become a profitable trader. My goal has always been to help as many day traders achieve their personal financial goals, whether they are novice traders or experienced traders.
Maurice Kenny has helped over 600 people become financially free through one-on-one coaching, mentorship, and options trading strategy. Many of these new traders are now full-time traders, and they all started by watching his 1-hr webinar.
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