Trading with Emotions

[rajputz]

Wonderful article sir ji

 

[saivenkat]

Dear Veluri ji,
Its beautiful work. It is a must read article for all those who want to succeed in market.

Thanks again for the nice effort.

Regards
Saivenkat.

 

[munde_77]

:thumb:.......................

Selecting Trades Properly

This is where so many traders go wrong. From the outset they dont know
what type of trader that they want to be. The guru is a day trader or an
option-only trader, so you should be, too. If the guru is trading a $50,000
account or recommends a $10,000 account, you should immediately
follow suit.

Wrong!

You must trade to your strengths, interests, seed capital, time constraints,
and abilities. Look at the experience of the program creator and
realistically look at yourself.

If you cant stomach day trading, dont do it.

If position trading is too stressful for you, dont do it.

Whatever the case,
avoid putting on trades that simply dont match who you are as a person.
If you are looking to stretch your boundaries into new trading arenas,
first use a demo account and apply, to the best of your ability, the same
conditions that you would experience if you were actually trading that way.
As we know, ideal conditions never set the rulethey prove exception.
A little self-knowledge can go a long way to diminishing or eliminating
improper trades from your lifestyle.

Entering Trades Properly

This leads us into how to enter a trade. In order to make a trade successful,
you have to know how you are going to get out and what you have at risk.
By fixating on the profits, you set yourself up for failure. The reality of
trading is that profits take care of themselves. If you have picked a good
trade and the market is going in the right direction, there is little you can
actively do to make that trade any better.

However, the question in the back of your mind should always revolve
around: What if I am wrong? By entering a trade with that question on
your mind, you can figure out if the trade is worth taking at all. Successful
trade entry is based solely on what you will do to exit. Often, this has to take into account what risk management tools you
will use in order to make the trade successful.

Monitoring the Trade

If you are a position trader, why are you watching the market hour by hour?
If you are a swing trader, why are you looking at end-of-day results? These
are genuine questions I have had to ask clients over the years. The key
reasons fall back on one of two answers.

They dont want to put a stop order in the market because they are
afraid their stops will be run, so they keep mental stops and sit at their
screen to get out fast; or they just like to watch the market. They are
actually letting every tick on the screen influence how they act or, more
importantly, how they will react to the market.

Whatever the reason of how and why a trader monitors the market, the
core reason is fear. They dont trust the judgment that they have used to get
into the trade, and they really dont know how to protect themselves from
losses besides either ignoring the market completely or watching tick by
tick to anticipate what will happen next in the market.

Successful monitoring has to also have a back-up plan. Much like
chess, you need to be three, five, maybe even seven moves ahead of your
opponent. There is only one way to succeed in a trade: The market has to
move in your direction. But there are at least two ways to lose: the market
moves against you or the market does nothing.

If you prepare for these contingencies, your monitoring becomes a
function of your preparation, not a crutch to rescue a trade that bad.

Exiting the Trade

Who determines how you get out of a trade, you or the market?

If its you, then maybe your actions are reactionary or you simply dont
have enough capital to be trading the markets that you are in. This is exactly
why you have to know yourself when you execute a trade.

How you got in the market should be the exact reason why you get out
of the market, if the markets fundamentally shift supply and demand in the
opposite direction of your initial position.

When the market shifts, you should have targets in place to capture
profits you have made or to protect your principal. These dont necessarily
need to be monetary targets; they could be overbought/oversold indicators,
Bollinger bands, and so on. The key point is that you have a
reason for why you do what you do, coupled with a back-up plan that
helps you reenter the market without being whipsawed or chasing the
markets.

The exact way you get out of a trade will have a direct impact on how
you get back into the market. It will determine if you can even get back in
or if its too late, or if you can double up on your contracts, or if its time to
find a new market altogether.

The exit, profits, and losses, should all be carefully prepared far in advance
of ever putting your first dollar on the trade. This is the only way to
prepare for an exit of a tradeleave a little room for unpleasant surprises.

 

[KateB]

Truly inspiring a post for the traders.....if they follow the correct chronology of emotions they are sure of prospering......

 

[oilman5]

good post Veluri1967!!!!!!!!!!!!!!!!

 

[Prasad. raju]

I have been actively looking at traderji for the past few months but never really got involved in posting as I was pretty much a beginner (novice so to speak) in this vertical. And every time I traded, some how my emotions took over my logical controls that we usually enforce (in my cases, extending stop-losses for possible recovery, not willing to book losses etc.) I am pretty sure almost everyone would have faced these ordeals. I was in desperate need to resolve this, thats when I found this thread and few others.

Very well put down by OP. Kudos! I know its an old thread but it ideally should help other out like it did for me.

Just to add my 2 cents, below are my learning from going through such references (EQ, amitranddive, Angel broking's blog) that talk about emotional impacts while addressing any activity (business or any other decision)
Do not over-react
Being realistic is the key
Go Long-term
Take help, if needed
Don't be ashamed of failure (its part of the game)

Hope it helps

 

[suri112000]

Have you experienced any or some of the following :-

■ Cut winning trades short even though you know your trade setup is solid.
■ Failed to pull the trigger on a perfectly good trade because of fear of loss.
■ Let losing trades run hoping for a return to breakeven.
■ Added to a losing position in the hope that the market would turn around.
■ Made profits in the morning but gave them back in the afternoon.
■ Became more aggressive after losing money.
■ Took unplanned trades when the market suddenly moved.
■ Stopped trading or reduced position size after a loss.
■ Traded greater position size than prudent money management practice would advise.
■ Held trades longer than they should have been held looking for a “home run.”
■ Failed to take a perfectly sound setup because the last two trades were losers.
■ After a day of big profits, your confidence soared and your trading suffered.
■ Consistently made small money but have been unable to elevate your trading performance.

These trading difficulties hurt. They not only hurt your account, but they also cause mental and emotional suff ering. No other profession tests your psychology as does trading. These diffi culties and unskilled trading behaviors arise from the underlying mental and emotional challenges traders face. Most likely you have made considerable eff ort to overcome these diffi culties but the methods you tried have probably failed you. After a while, you may question whether anything will ever work, or worse, you may question your suitability for trading.

 

[kumaax]

Good Article...

 

[sphameed]

@suri112000 well said your post must save if some one read them patience 2nd happening when experience with 11th after realize this. i never took a trade completely satisfied my setup. if we took wrong or unplanned trade its must hurt upcoming opportunity. after read Trading in the zone by Mark douglas.
i never do sitting like elephant eating like bird

 

[MSN1979]

Have you experienced any or some of the following :-

■ Cut winning trades short even though you know your trade setup is solid.
■ Failed to pull the trigger on a perfectly good trade because of fear of loss.
■ Let losing trades run hoping for a return to breakeven.
■ Added to a losing position in the hope that the market would turn around.
■ Made profits in the morning but gave them back in the afternoon.
■ Became more aggressive after losing money.
■ Took unplanned trades when the market suddenly moved.
■ Stopped trading or reduced position size after a loss.
■ Traded greater position size than prudent money management practice would advise.
■ Held trades longer than they should have been held looking for a “home run.”
■ Failed to take a perfectly sound setup because the last two trades were losers.
■ After a day of big profits, your confidence soared and your trading suffered.
■ Consistently made small money but have been unable to elevate your trading performance.

These trading difficulties hurt. They not only hurt your account, but they also cause mental and emotional suff ering. No other profession tests your psychology as does trading. These diffi culties and unskilled trading behaviors arise from the underlying mental and emotional challenges traders face. Most likely you have made considerable eff ort to overcome these diffi culties but the methods you tried have probably failed you. After a while, you may question whether anything will ever work, or worse, you may question your suitability for trading.

The best thing I have read since morning.