You stop acting on days when your emotions are too high until you can clear your head. You can even do the following:
- Move a stop to break even
- Move away from an active trade so that you don’t disturb them
- End a session early to ensure a profitable day
- Check the sticky notes on your monitor before entering a trade
- Talk to yourself to stay disciplined and motivated
- Keep reminding yourself of basic concepts such as “losses will happen; don’t let that influence you “
- Take a long break from trading
Or vice versa, maybe you do this instead:
- Shift your profit goal out of a greedy attempt to commit murder
- Chasing the market for fear of missing out
- Exaggerate out of anger to make up for losses or mistakes
- I think you can outsmart the market for trusting too much
- Stick to a losing trade for too long because your confidence can’t handle another loss
The problem with all of these behaviors is that they minimize your profitability, as well as your ability to adapt and improve as a trader. Trading smaller, getting out early, and booking a profitable day to keep your emotions in check can severely limit your upside potential as a trader. And making trades on a mixture of anger, fear, greed, and superconscious or subconscious can be downright dangerous.
LEARN TO READ THE SIGNALS
Let’s go a little deeper. It is a myth that emotions like anger, greed, and fear are the problem that is causing your trading mistakes. These emotions are real Signals. This is a critical change in perspective. Instead of fighting your emotional state, treat your emotions as signals and get curious about what they are trying to tell you. We do this all the time when it comes to physical ailments. And like our feelings, sometimes the real cause isn’t always obvious.
Let’s say you got a headache at the end of the trading day. At first you think that it is caused by the stress of trading. Family and friends agree, but you still get them on weekends and even after a week’s vacation. You go to the doctor because you fear it is something worse, but everything is checked. You have been taking over-the-counter medication for a few months trying to relieve your headache, but you still haven’t found the cause. Then, at the end of a trading day, when you finish your journal, you notice that you blink and decide to have your eyes checked. It turns out that your eyesight has progressively deteriorated over the past six months, and eye strain is causing your headache. Change your prescription for glasses, problem solved. Headaches weren’t the problem – they were a signal, and it was your job to interpret what that signal meant.
Likewise, negative emotions are signals of the hidden mistakes that undermine your trading. For some people, these hidden flaws cause subtle problems. They are like computer programs that run in the background but are not open on your desktop. They cloud your market sense, decrease the clarity of your thinking, and slow down your reaction time.
For others, the hidden problems are the cause of a flood of error messages and blue screens. You are making trades that you know you shouldn’t but you can’t stop. You stare at a school bookstore but cannot pull the trigger. You know you should close, but fear or greed blinds you. You know the right way to react, but you can’t stop yourself from overreacting. No matter how much these errors affect your trading, they need to be identified and corrected in order to consistently trade at the level you expect or aim for.
Think of your emotions like the indicators you follow in the market. As a trader, you use signals all the time and, based on your expertise, you are more or less able to use these signals to take advantage of them.
MAP YOUR PATTERN
The good news is that your emotional responses keep recurring for the same reason. There is no randomness in the mental game. Just as you identify patterns in the marketplace and develop a strategy to use them, you can identify the underlying causes of your emotions by mapping the patterns of your reactions.
Many traders are blind to the patterns in their mental game, but recognition is a learned skill. And like any other skill, the more you work on it, the better. The key is to write down the details as they occur. Write down your trading mistakes and note what happened before, during, and after. Make sure to write down your thoughts, emotions, behaviors, changes in decision-making, and the nature of the mistake.
For example, let’s say that anger quickly turns you into loss. Here’s what you might want to map:
- Thoughts: I can’t believe this is happening. I’m not going to let the market stop me – I’ll get this trade right!
- Emotions: I want revenge when a trade I know has an advantage doesn’t pay off
- Behavior: I focus on one position and constantly look at PnL
- Change in decision making: I focus on getting revenge and getting my money back
- Trade mistake: I keep taking the same trade until it is clear I am wrong and getting nowhere
Before your next trade, think back to previous instances when the errors occurred and write these details down as best you can. That way, you can immediately avoid repeating some of these mistakes.
Start when this process gets easier Search for previous signals. What happened before If you are too caught up in the day to think about chasing your emotions, then you should think twice Set alarm at a regular frequency that is not too disruptive (i.e. every 15, 30 or 60 minutes) to take stock of where you are. Some customers have also found Meditation and mindfulness training be useful to create a higher consciousness.
It will take time, but if you do this consistently you will eventually be able to pick up more of your signals as well Stop indulging in the behaviors that stand in the way of your success as a trader. Just like you stop taking medication when your headache goes away, you don’t have to spend time and energy managing or controlling your emotions as they are no longer triggered.
The payoff can be huge. As a customer told me “ Understanding yourself is even more important than understanding your diagrams. I used to have a lot of emotional baggage with me without even knowing it. After using this system, I am no longer a slave in the market – now I can make the market work for me. “
Please see my latest book for more information. The Mental Game of Trading: A Gradual System for Mastering Trading Psychology.
About the author
Jared Tendler, MS, LMHC, is a leading expert on how your mental game affects performance. Its client list spans 45 countries and includes esports players, financial dealers, some of the best poker players in the world, a senior pool player and several PGA Tour players.
Jared is the author of two critically acclaimed books, The Mental Game of Poker and The Mental Game of Poker 2, and is currently writing a book on The Mental Game of Trading. He is the host of the popular podcast. The mental game. In addition to his writing and 1: 1 coaching, Jared was previously also head of sports psychology at the esports organization Team Liquid. He was a key factor in their success as they won multiple championships including The International 2017 (DOTA2), the Intel Grand Slam (Counter-Strike) and four League of Legends Championship Series (LCS) titles.
Jared’s straightforward and hands-on coaching approach has helped numerous clients solve their mental gaming problems and achieve top performance. After completing his master’s degree in counseling psychology (MS) and training as a Licensed Mental Health Counselor (LMHC), Jared began his coaching career in 2005.