Managing our emotions when trading; why you ignore this issue at your peril and why dreaming ‘works’
As traders we’re often ‘guilty’ of dreaming where our trading may eventually take us financially. In many respects projecting our ambitions into the future, by using our imagination, is a perfectly healthy occupation. We often like to point out that as retail traders we’re entrepreneurs running a small business and whatever small business we start up we need to have energy, passion and commitment for it. We also need to indulge our dreams and fantasies regarding the rewards our potential business success can have for us and our family, if not you’d question our purpose and motivation. None of us want to start a new business for it to break even in the first two years to then move into a minuscule profit by year three, we want it to fly. Could the business afford us: a better house, better cars, a better education for our children, exotic holidays?
The critical issue with our business dreams and fantasies is that they remain achievable. Upgrading our house, driving new cars, sending your kids to a better school, University, or college and finally taking that exotic holiday to the Caribbean, are goals that are well within reach as a successful small business owner. It could be argued that they’re the minimum target we should attach to our new business and its goals.
These dreams can prove crucial to maintaining our enthusiasm and commitment, particularly during the early years as we’re becoming accustomed to the complexity of our trading business. These realistic dreams can also help combat many of the raw emotions we may suffer early on in our trading career. They can help us maintain focus on that ‘mental finishing post’ in the distance, where we imagine that we’ll finally be that complete trader that we’d always imagined ourselves to be.
Once we analyse our achievable dreams and trading fantasies in more detail, you begin to realise that they’re not dreams after all, they’re simply realistic ambitions. Similar to an elite athlete who will focus on winning that race, or scoring that winning goal or try, in imagining our success in (all its forms) we’re generating very ‘healthy’ emotions. These non-destructive emotions will aid our trading on many critical levels. These healthy emotional feelings couldn’t be more different from the destructive emotions we can suffer as traders and there’s a reason why we’ve gone to great lengths in the first part of this article to concentrate on visualizing such positive outcomes…
The destructive emotions of greed and fear
When we think of the destructive emotions involved in trading at the very top of that list will be greed and fear and there are many instances where these two emotions converge and overlap. Greed is fairly simple to dissect in relation to our trading. We might hold onto losers too long, whilst hoping in vain that price will eventually ‘come back’ and put us in profit. We may cut our winners too early; as greed rears its head we can become far too impatient to bank some profit whilst the move may still have some ‘distance’ to travel on our charts. We may hold onto winners for too long (after price has begun to retrace a momentum move) as we refuse to accept that we’ve banked all the profit available, there are countless other examples of how our greed can negatively affect our results.
Fear can present itself in many ways, the fear of pulling the trigger and taking a trade can become a huge issue with many traders. Fear of losing can also be highly destructive if left unchecked, whilst a general fear of the market and all its complexity due to inexperience, can also lead to destructive trading practices directly harming our opportunities.
There are many methods suggested for traders to combat negative trading emotions such as greed, fear, impatience and anger. However, many of these traits can only be overcome through practice and experience. We can’t learn to shut these emotions off and out, they’ll always be there throughout our trading careers. They still linger in the mind of the most successful and experienced traders who’ve taught themselves techniques in order to dismiss these irrational emotions. Now we can put forward many suggestions: auto trading, lessening risk until the palms of our hands stop sweating, moving up time frames but there’s also another technique and it involves a form of auto suggestion and positive reinforcement.
We’ll go into a far more detailed explanation of auto suggestion and how it can possibly help our trading in part 2 of this article tomorrow, but for now let’s imagine that we constantly have in our mind the achievable targets that we set ourselves earlier. Moreover, when we experience a loss we’ll immediately focus on our realistic goals and remind ourselves that, despite the recent loss, we’re still on target to reach our goals. It’s a fairly simple process which helps traders focus on the potential positive outcomes, as opposed to becoming mired in negative thoughts.
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