It’s important to ask this question to ourselves from time to time. We need to ask why is it that we are trading . If you look at people sometimes people will do things and it is important to ask the question why.
What type of Trader Are You?
A man will climb into an airplane and they will go up thousands of feet and jump out. I can’t understand why anyone would want to do that. Some say they enjoy the rush that they get.
There is another man who will go into a building filled with lights. This man is expecting to get rich. He doesn’t understand odds and that the odds are against him. He is looking to have a good time. Some get addicted to it and they feel like they are going to win in the next play of the game.
Then there is the factory engineer. He designs a part. He understands that his machine will build a certain number of good parts and his machine will build a certain number of bad parts. He also understands that the money he makes on the good parts will be more than the money he loses on the bad parts.
What type of trader are you?
These are three different scenarios. Which one describes you as the type of trader that you are? Are you the one that jumps out of the airplane for a rush? If that is the type of trader you are then you are going to lose all your money. The reason is because you always going to want more. You may start out with a 1% trade, then that might turn into a 10% trade, before long you are risking 100% on every trade. Trading should not be a rush.
The next type of trader is the one who looks at the market as his own little casino. This trader is always looking for the next big win. This trader rides losses to his own demise. When a position goes against that trader the trader puts up more money. Only to keep on losing and watching his account go down down down. His motive is greed. His trading is run by his emotions.
Then there is the last guy the engineer. He is systematic. He wants a trading system that repeats itself every time. This trader take the data everyday and uses it. This trader does not change the formula based on feelings. His trades are determined by a system. He knows this system and he is not trading based on emotions. He is trading on a repeatable process that will be done over and over. This trader understands that there will be losses. This trader may even have months or years of losses. The trader understands that these small losses will one day turn into big gains. Trading should be done like a robot. The trader takes the signs and makes the trade. So how do we get our minds to the point where it is process driven?
Do you Understand Risk in Trading?
When I was in school as most people do I took algebra. I did not understand some of the problems. My mind could not get it. Then one day the light bulb came on. When that happened it became easy. Good trading is the same way. When someone begins trading they are probably an emotional trader. They are riding on an emotional rollercoaster. If we are on an emotional rollercoaster what is the causes of that? Why are our emotions going up and down?
The number one reason people are so emotional about trading is because they are risking too much money. Imagine that your rent is due and you have $1000 left in your checking account. You have all your money invested in an out of the money option and it loses all of its value. That is investment suicide.
If you have $10,000 in your checking account, you have $100,000 in your investment account and you risk $2000 on a trade you will not be as emotional. One way to stop the emotional rollercoaster is to not risk so much money.
Are you trading blind?
The next reason people are so emotional in their trading is because they are trading blind. I was a member of an investment site one time and they would send emails for their buy and sell signals of options. They did not tell me how much to buy, how much to risk, or where my stops should be. They sent out an email that said buy or sell. So I would sit around checking my email. When I would get the email (if the email got to me on time) I would make the trade. A lot of times the email didn’t get sent to me on time. I was behind the trade, I did not get in at the right time, and I was always checking my email. waiting for the buy and sell signals. This is trading blind.
Trading blind is very dangerous. If you are trading a system and don’t know exactly where to buy and sell as well as how much to buy and sell before the market opens then you don’t need to trade that system. You need to know before the market opens where you are going to buy and where you are going to sell. If you are part of a membership site that doesn’t give you that then you don’t need to be a part of that site.
What should I know before the market opens?
• The Buy Prices – If this symbol moves above a certain point then we are going to buy.
• The Sell Price – If we have already bought this stock where are we going to sell?
• The Short Price – If It goes down where are we going to short?
• The Cover Price – If it goes back up where will we get out of our short?
• How Much to Buy- This needs to be based on volatility.
If you don’t know all those things before the market opens then to that degree you are trading blind.
Do you have to be in the Game?
Another reason people get so emotional in their trading is that they feel the need to always be in the market. Sometimes we feel like if we are not in the market we are missing our opportunity. We think to make money we have to be in. If we are not in the game we can’t make money. We always need action. We look at our accounts and if it’s not moving we feel like we are not doing anything. The DOW goes up 300 points and we feel bad because we are not in the market. Sometimes the best position is cash.
How can we beat emotional trading?
The first thing we need to do is embrace losses. It is importantÂ to control losses. We have to be above the market and not in the market. The market is a group of people who are trading mainly on emotion.
They are buying they are selling. If you look at the stock market floor you see that it is full of emotions. We have to be above the market when its time to sell then sell. We should never double up on a loss. When the system says sell then we sell. The best way to beat emotional trading is to have a system. The system makes you into a robot. It tells you what to do. When you have a system you almost forget what you are buying. You forget your trading BP, you forget that you are trading gold, and you trade based on the signal. When you get the signal then you place the trade. When you have a system your emotions go away. You Trade like a robot.
You have to get to the point where the loss of money does not bother you. That does not mean you take a big risk. You still have to follow the system.
We teach our little ones to win in sports. We want the trophy in little league. The olympic players are taught since birth to be the best so they can win. The best athletes are taught to never give up never quit.
Attitude for Trading
That is not the attitude we need in trading. It’s not what we need in each individual trade. In trading when we are losing on a trade we need to quit. We need to cut it short. A 50/50 record in trading is a good record. As long as you cut your losses short and let your winners run. Trading is a process. You must follow the process. You do what the system says every time all the time. Never second guess the system. Plan the trade before the market opens, don’t risk too much, and don’t lose money we don’t have. If we do this we will be ahead of the game. These are just a few ways that we can trade better mentally.
Our trading systems include all these things check out a memberships today.