What can I say? I don't even know where to begin...
Not all traders agree on how a trend line should be drawn, not all traders agree on how the fundamental news should be interpreted, but I can guarantee that most traders would say that emotions play a part in trading.
Hopefully you did not stumble onto this blog because you were (or are) struggling with trading and have taken an emotional hit from it. If so, I'm sorry but just know, it's not the end of the world!
As a disclaimer, I'm Not Going to show you how to get rid of your emotions (I'll tell you why that's a stupid idea later).
I am though, going to show you how to manage them, and act accordingly.
Here are the topics we will be going over:
1. How to get rid of your emotions
2. Struggle to control your emotions.
3. Recognising the emotions
4. Emotional state during a trade setup
5. Turning emotions into your weapon
6. What are you feeling when a trade is activating?
7. Remedies that might help you
Yes, we all want to be like the Terminator in trading. Trading without emotion would seem to solve all the trading issues we have. It seems like the only way to be profitable, is to become an Android.
Heck, maybe Navin is an Android himself! LOL
Well, jokes aside,
We all struggle with emotions in trading to some degree. But emotions are not something we can switch off and get rid of it, they are built into our brain to protect ourselves. This dates back to the prehistoric days where common emotion such as fear, was initially programmed into our ancestors so they know when to run away from a Saber-Toothed tiger.
Now hopefully we are not running from any tigers, but my point is, emotions that are build into our brain which has been passed down for thousands of years cannot just be 'switched off'. It's in our genes!
I hope not many have left this page now thinking that I don't have the answer to become a robot.
So now that I have gotten this myth of 'Getting Rid of Emotions' out of the way, let's get to the juicy stuff.
Although we are unable to get rid of our emotions, are we able to at least 'control' them? I guess, some might say yes. And that's possible, but 'controlling' might not be the right word.
You see, we have no control over when something might emotionally trigger us.
Gordan Ramsay might be triggered when he sees a steak being undercooked, but I wouldn't even care if I'm hungry enough. However, I might be emotionally triggered if I found out that Gordan Ramsay stops yelling at people in the future.
I know that's a very random example. But that's the point, our emotions can be triggered whenever, by whatever/whomever (obviously differs from person to person).
So you can't technically 'Control' when emotions arise.
But, we can Control how we Act when emotions do Arise...
You guys who initially thought you have 'Control' over your emotions may have been already doing this subconsciously.
But if you don't I'll show you what you can do.
That is the first step. Being able to recognise when your emotions arise, is 50% of the battle.
Now, has this happened to you?
You have an argument with your family/friends/partner over, let's say, what to have for dinner. Then this argument leads to something else and it goes on for multiple hours. Then later when everything calms down, you don't even remember why you were mad in the first place anymore.
The argument could have been avoided as soon as you realise you are getting irritated. Instead, you fed into the emotion and it's a pour gas to the fire situation from there on.
(Hopefully I'm not the only one guilty here 😅)
Likewise in trading, sometimes we don't even know when we are trading out of Fear, Greed, Revenge etc, until the end of the day (when we look back at it).
Here's how you can get good at recognising emotions,
Do look up all the benefits of meditation. If I go on about that too, we will be here all day. But just know, at the very least, you'll be able to recognise when emotions start rising throughout the day much quicker!
Treat meditation as part of your Training for Trading.
You've probably heard of the cliché saying that trading is 80% psychology right? If yes, then take care of your brain and emotions.
Be their master.
Now that we've discussed how emotion arises, let's go over some possible emotions in a trend pullback setup at different stages.
What do you feel?
Or maybe you know better than that, you need a pullback?
Now what do you feel?
Perhaps still having FOMO where if you don't get in now, it's gonna leave again?
Now? It looks like it's ready though. What happens in your mind when the plan is supposed to activate?
But you just had a few losing trades, maybe you should stand aside in case this turns into a loser too?
All of what I mention above are possible emotions that could arise in your trading, in all of our trading. The problem arises when we give in to those emotions and act upon them in the wrong way. I.e., Chasing at a bad price with risky stops.
You'll need to turn those emotions into your weapon.
There are a lot of ways to use your emotions as weapons, or at least aid in your trading. You can get very creative with this. But let me show you some of my favourite techniques.
1. Feel the emotions of the opposite party.
Imagine yourself being the person who's trading the pullback and imagine how you would feel each step of the way. Ie,
Now, imagine you are selling this on the way down.
You are selling, and it's going down, emotionally, you'd feel good right?
Now? You'd feel a little concern? Why is the trade not going down anymore? Is there a S&R you are not aware of?
Not sure about you, but I'm sure some traders are going:
"Ah dang! It's gotta be my broker again. I better get out"
Guess what happens when enough traders at this zone are trying to get out? It's going to fuel the price higher, then buyers would start coming in.
If you are able to understand how emotions work in trading, you can take advantage of it. Wait and see when the opposite party starts to panic, that's when you want to take action.
So in this example, you would want to think about how the sellers are thinking each step of the way, and get in when you feel that they are getting out of their sells:
2. Lean into them and learn from them.
Emotions can be very powerful, and these powerful emotions can create a strong memory.
Exactly like the time I had my first breakup, and I cried and slept in the bathroom for a day. I didn't eat and didn't want to wake up in the morning. Alright, that might be too much information..
(That's not me btw incase you're wondering)
Alright, enough with my puppy love...
The point is, you don't want to remove emotions that give you good lessons that can help you. Don't just shrug them off.
In trading terms, this could mean the following:
You may be in a trade, trade goes against you and you extend (widen) your stop loss:
You keep doing that and the next thing you know, you were stopped and half of your trading account is wiped out. You feel horrible and obviously that creates a very strong emotion. (Classic Raju)
In situations like this (after you have calmed down), you can lean into that emotion Temporarily again, and recall how you felt.
From there, derive a lesson from it. And have that tattooed in your brain.
In this case, it would be:
"I will never move my stop loss again because the last time I did that, I felt absolutely horrible and it doesn't help my trading! Not to mention I hate my brokers phone call that comes after."
Those are 2 very good techniques that you can experiment on. Putting yourself in the opposite party's shoes to feel how they are feeling, and using emotions to build valuable lessons.
Here's something we all know. How we feel on a daily basis can be easily influenced by external factors.
Your partner screaming at you first thing in the morning and how your dog welcomes you home, are both external factors that generates very different emotion.
So, when trading, you can cultivate an environment (external factors) that leads to a very calm emotionally trading session by experimenting with these 3 things.
The trick here is association.
If you are a person that meditates, meditate with a fragrance beside you. Whilst you're meditating, try meditating on how you want to trade, tactically, emotionally etc.
Then when you come to your trading desk, place the same fragrance beside you. In due time, your brain will associate the smell with how you want to feel and act in trading, ie. calm and in control.
What you listen to is very important. It can either rile you up or put you in a very calm state.
Let me tell you, the last time I listen to the playlist "Music that makes you feel unstoppable", my trading didn't went so well...
The key here is to find music that will put you in a calm emotionally neutral state. Personally, I find the genre 'Lofi' being just right for trading and focus.
You can experiment with this based on your preference.
I find this being very important. A lot of times, we have no control over what happens externally.
You want to be very aware about what's going on externally and how that might affect you. For example:
You might have just got home after a long day at work having the boss screams at you. If you are feeling frustrated and mad, that's not a good state to be trading the markets immediately.
Your kids just got first place in class. If you are feeling proud and overly enthusiastic, that's equally not a good state to be in the markets immediately.
You want to be as emotionally neutral as you can.
I hope that I didn't ramble too much in this blog. That's just me sometimes.
But I hope that you get to see how emotions can actually be quite a simple topic, it's generally us that makes it more complicated than it should. Be it in our personal life or trading.
I'll leave you with this quote,
"The key to trading success is emotional discipline. If Intelligence were the key, there would be a lot more people making money trading."
- Victor Sperandeo
With pip Love,
Lucas at Urban Forex
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