Emotional Trading

Here is an excerpt from our membership content about Risk Management. It is the ‘Emotional Trading’ part out of the Psychological Risk section:

Emotional Trading

As I’ve said before, emotions have no business in trading. This is an incredibly hard concept to overcome and a majority of traders battle with this forever. It doesn’t have to be that way though. We can overcome this through some simple planning before and after each session while maintaining a logical perspective on what we’re doing.

Some thoughtful ways to overcome this would be the following:

– Have a game plan before each trading session.
– Make sure your risk is clearly defined before taking the trade.
– If you make an impulsive trade, get out and collect yourself. No need to continue in the trade.
– If you make continued impulsive mistakes, keep a list of them in front of you so that you’re always aware of them.
– Don’t trade your PnL. There’s no need to stare at your PnL all day. You need to focus on the process not the outcome. Trading is not about money.
– If you’re having a bad day, have a cut off point. Shut everything down and come back later after the market is closed to analyze what happened and learn from it. You can then come back the next session fresh and educated.
– Balance. Having some sort of interest in your life beyond trading is so important. You need to have a balanced lifestyle and by doing that, your mind does not place too much emphasis on your day-to-day trading. What I mean by that is, if you’re sitting at your workstation all day and putting all of your emphasis on trading, you will tend to have a hard time accepting when you’re wrong. Alternatively, if you just follow through the daily process of trading but also have other things in your life, your emphasis becomes more balanced.


Risk Management Overview:

– Financial Risk
– Technology Risk
– Settlement Risk
– Disaster Risk
– Opportunity Risk
– Event Risk
– Psychological Risk
– Tactical Risk Management

Reblogged from the old Private Banker blog: Risk Management – Psychological Risk – Emotional Trading

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