How To Take Emotion Out of Trades

The most ironic advice in the trading world: “Don’t be emotional”

It’s ironic because human beings are naturally emotional.

When things go right, we’re happy.
When things go wrong, we’re sad.

But in trading…the emotional output from a trading result can negatively influence what we do next.

For example, you may get upset after losing multiple trades in a row, so you triple your lot size.

Positive emotions can be your enemy too.

You may win big on a trade and become very optimistic, leading to replicating the same trade with more money. The next trade almost always fails.

Anyway, emotions are ingrained in us.

We can’t escape from them but we can approach emotions in two ways – either waste mental resources fighting emotions or you can do the intelligent thing:

Reduce the weight of the emotional output

What does this mean? It means feeling less happy when you win and less upset when you lose.

Here are 4 ways to do this:

1. Use a Smaller Trade Size

Anytime you use more risk on a trade, your body subconsciously registers it and triggers anxiety or fear – these two emotions are enough to make you neglect your trading plan.

A small trade size puts your mind at ease and allows you to not get overemotional about a win or a loss. One of the biggest reasons traders avoid small sizes is because the win isn’t satisfying – the only fix is to increase your account size before trading.

2. Don’t Stay In Trades For Too Long

You open Pandora’s box when you stay in trades hoping to extract more profit than originally planned. You may end up losing the profit – this can cause you to stay in the trade until it returns to the original profit price.

Guess what your mind is doing in the pursuit of extracting excess profit? It’s on a rollercoaster. It’s not worth the potential pullback and mental exertion.

3. Know Your Strategy’s Stats

If you’re using a strategy that takes about 3 losses to see 1 win, should you be upset when you lose 3 trades in a row?

The obvious answer is no, but many traders get upset during a losing streak.

This is why knowing your strategy’s stats is important.

Having verified expectations on how your strategy should perform gives you confidence to stick to your trading plan.

4. Focus on Building Your Account Trade by Trade

In the business world, wealth is built over a series of transactions. Not one transaction.

Trading works the same way. You have to get into the habit of building an account brick by brick. It may seem slow and even boring but it’s a habit needed.

Most traders would be satisfied receiving £1000 from trading. But what traders forget is that £1000 is ten £100 wins. They always think about getting it in one go and when they do it causes overemotional trading.

By the way…

Taking the elevator leads to blowing accounts.

Taking the stairs leads to growing accounts.

Slow trading is real trading.

Have a nice trading week!