The emotion of trading

If you have learned how to trade the stock market, but feel let down by your instructor or you are just struggling to get trading working for you
– Then I know how you feel.

I learned to trade with a large company – I knew nothing, (I think it took me 3 days to understand “shorting”)
Anyway once I had returned home from the seminar, as per instructions, I started to set up my charts and indicators, found an online broker and started doing some paper trading, so far so good!
I then progressed to real trading …how exciting! I won my first 3 trades…I could do no wrong! then ….I started losing my trades, by the end of the month I had lost £2500!

What happened? ..I had become over confident. I thought I knew what I was doing and I had started trading without a clear written strategy, without a clear plan, I had made the fatal error of increasing my stake without proper testing of my strategy
(I find it laughable now, that I could have been so naive!) and losing my money so quickly made me quite dizzy.

Paper trading is great – it gives you the practice of seeing the trades, calculating the risk/reward, working out entry and stop points. But what it doesn’t prepare you for is the emotion that you feel when you trade for live money! The rush of adrenaline when you are winning, the bottomless pit of gloom that you feel when you are losing

So how did I turn my trading account around…I got a coach/mentor
• I wrote my trading plan.
• I got a clear strategy; I had a defined way of trading that I did not deviate from.
Basically I reduced the number of ways that “emotion” namely fear could take hold of me
Fear raises its head all the time.

The fear that I have entered the market too soon or too late
The fear that the market will go the opposite direction
The fear that the profits that I have already made could be wiped away before I have time to bank them.
The fear that the trailing stop is too tight
Fear, fear, fear, fear

BUT; with a strategy that is clear, that includes money management, that I have confidence in, that works 70% of the time ..the fear is greatly reduced. I started to record all of my trades. I reviewed them weekly and made sure that I learned from my mistakes and most importantly..I took action so that I did not do it again.
I stopped over trading – I set weekly targets and disciplined myself to stick to them
– this was difficult as trading can become quite addictive!

I started training, at this time, to be a personal development coach. I learned loads about how my past experiences now affect how I view money and wealth.
When I reviewed how I reacted to losing trades I also realised that I had some issues that were stopping me from trading how I wanted to trade.

I was brought up in a home where gambling was not acceptable, that money was precious and quite scarce. I became conscious that every time I placed a trade I felt like I was betraying the values that I had been taught and that I was gambling with my future. This had been something that I had not even recognised before, I had just locked it away in my mind and now it was getting in the way of my trading.

I wrote down all the issues that I had with “gambling”, how I felt and who I felt I was letting down. I then went through this list and realised that they were ridiculous and I decided to change my beliefs.
I know believe that:
Spread betting is not gambling with my future –for me, it is a calculated action that has sound strategies and principles behind it.

After dealing with these issues (and lots of others!), again my trading account balance began to increase.

My conclusion is : physically taking a trade is just a small part of this business we call stock market trading, the bigger influence is our emotion and more importantly how we and all the other traders in the market respond to it.

http://WWW.tradecoaching.com

Advertisements