How Do Great Traders Control Emotion?
July 25, 2008 at 2:27 pm
Great traders are often thought of as talented anticipators of direction or momentum, or as exceptionally skilled risk managers, which many are. But an oft-overlooked trait which should always be mentioned is the successful trader’s ability to control emotions.
Use Your Head!
I definitely think every trader struggles with controlling our emotions from time to time, and it is one hurdle which trips up many would-be traders that never choose to get beyond it. And it is a choice – either you control your emotions, or your emotions control you.
I’ve traded in the same office with guys who broke keyboards over a $500 loss, and I’ve seen guys who can literally take a nap when up 6 figures on the day they are so cool, calm and relaxed – just total control. The difference between them wasn’t their account size either – it was in their minds.
Mapping a Path to Profits
I suppose the simplest approach for getting to where you want to be is that you seek to build that control over time. There’s a natural tendency to treat trading like watching a horse race and get excited or upset, depending upon the outcome.
However, the best traders have found the boundaries of their comfort zone, and they stay right on the edge of them. They know before they put on a trade what the worst-case scenario entails, and they proceed with the trade with that in mind, able to accept it if it happens. They stay within their risk limits by doing so. Further, they know that if they put on too much risk, they’ll not only lose more than they should, but they’ll likely make some poor choices along the way by focusing on the loss rather than making the best decision at any point along the way.
A great trader is able to think clearly from start to finish, and while there may be some mild irritation (enduring pullbacks), minor impatience (if the position stagnates), or slight satisfaction (as the trade begins to work), they avoid letting those emotions drive their behavior. They truly do stick with their plan, making modifications to it not on a whim, but only when absolutely necessary.
A Simple Solution
The best way to achieve that state of control is to chose to trade small enough that the outcome of any one trade doesn’t carry huge meaning. That will help to formulate a good habit of focusing on the trade, not the P&L (which is where emotions come from usually).
As you gain more control, you incrementally add more risk over time as you are comfortable, gradually increasing that comfort zone but not trying to achieve it overnight.
Develop good habits with small trades, and then slooooowly build your trade size along the way. If you strike the right balance between growth over time and clarity right now, you’ll be well on your way.
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
Tonight’s Trading Webinar Reminder
July 23, 2008 at 6:25 am
Just wanted to post a reminder for tonight’s free trading webinar I’ll be doing with Blocks in conjunction with Worden. I’m excited about the opportunity to co-present with Craig Shipman, and it should be a fun and informative hour for those who are able to make it.
We’ll start tonight at 8pm ET, and I hope you’ll join us!
Here’s how you can register in about 5 seconds…
1) Use this link to the Worden homepage, and click the Blocks logo at the top of the page.
2.) Click the “Upcoming Webinars” description beside the July 23rd event.
3.) Enter your name & email address, and you’re good to go!
See you tonight!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
What Are You Doing Next Wednesday Night?
July 17, 2008 at 2:32 pm
I am thrilled to have been invited by the fine folks at Worden to help out with a free Blocks webinar next Wednesday, July 23rd at 8pm ET.
I’ll be co-presenting with Worden’s Director of Training, Craig Shipman on Discovering Stocks Suitable for Your Trading. It’ll be 1 hour long, completely free, and we’ll point out a couple of core trading concepts and how to put them into practice with Blocks. I hope you’ll join us!
Specifically, the webinar will cover how to locate stocks which are appropriate for your trading style, as well as how to evaluate pullbacks for potential buys.
Here’s how you can register…
Visit the Worden homepage, and click the Blocks logo at the top of the page:
Then click the Upcoming Webinars description beside the July 23rd event:
Sure hope to see you there Wednesday! It should be a fun, action-packed hour with some very helpful hints & tricks on using Blocks to find potential trading candidates.
And of course, if you aren’t already using this charting software, then you’ll see what you’re missing out on. I’ve discussed this revolutionary product before, and it just keeps getting better.
(PS. Those who register will have access to the archived webinar even if you can’t attend live.)
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
Trading With Objectivity
July 8, 2008 at 10:39 am
Trading today’s markets is as competitive as any other endeavor. The brightest minds are involved, countless sums of money are at stake, and if you don’t show up prepared, you can get your face ripped off.
The Bottom Line, At the Top
Here’s the concept that so many traders miss: if your head isn’t clear, then do not trade.
Simple, but not easy, right? With dirt-cheap commissions and the ability to enter and exit trades with a single click, it’s incredibly easy to be overactive. It can be downright exciting to dart in and out of the market. The problem is, that typically leads to a loss of focus as you chase every tick, and rarely does it translate into overall profits. Instead, it can quite often lead to a nasty losing streak where you ultimately don’t know which way is up.
I can’t think of anything I’d like to avoid more!
Honesty Helps
Not long ago, a trader I know was being very up-front with his reasoning to stand aside, and it reminded me of the importance and the truth of this trader’s words. After being frustrated by a few trades, he commented that “today I don’t think I’ll be able to very objective….I’m clearly too angry right now to be productive. I don’t know if I’m like other traders but I’m (carrying) a lot of emotional investment baggage that will show itself in times like this.”
Wow! How often can you make that kind of admission to yourself? Self-honesty is a great thing to strive for in your trading, because the trader who knows himself and his own tendencies can avoid the pitfalls which so many other fall victim to.
This is indeed a trying time for traders of all but the shortest of timeframes. Long-term investors are getting hammered, and those with intermediate-term timeframes are having to stay very selective and hold high levels of cash while waiting for lower-risk opportunities to surface.
Whenever that’s the case, it’s of paramount importance to trade with your objectivity intact. If you’re thinking clearly and you have your head on straight, then nothing is holding you back and you can actively seek out new trading opportunities.
However, if you’re paralyzed by recent trading losses, if you have a distinct market bias which puts you at odds with the existing downtrend, or even if you have personal distractions away from the screens, then there’s nothing to justify being active. If that describes you, then sit on your hands for a little while and wait for the fog to lift. Remember your trading objective, and wait for the right conditions to surface (both externally and internally) before you get active again. You’ll prevent a lot of frustration by doing so.
Protecting Two Kinds of Capital
As traders, we all have to remember our top priority and keep our trading accounts intact so that we can stay in the game. However, often times we ignore the state of our emotional capital and the importance it carries. When we neglect the condition of our psychological capital, we leave ourselves vulnerable to a different kind of drawdown – the worst kind.
When we lose our objectivity and continue trading anyway, the harm done to our trading account can be significant, but often times it pales in comparison to what’s happening to our confidence. Once that erodes, it’s extremely difficult to replace, so take every measure possible to protect your confidence along with the dollars in your account. After all, survival is the secret.
Objectivity is key in this game, and to me it is a top priority to keep it intact. That’s how I’ll locate good opportunities to trade going forward without trying to force something that isn’t there.
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
Trading Video – 10 Chart Examples of How Stops Work
July 3, 2008 at 7:00 am
Here’s another video of a trading lesson for your viewing pleasure over the long weekend.
It would be difficult to have missed seeing the tankage in the Metals & Mining stocks on Wednesday, as most of them reversed sharply after demonstrating a lot of recent relative strength. The turnaround moves seen in those stocks offered too good of a trading lesson to pass up, so I spent a few minutes pointing out 10 charts and 3 ways which stops could have been employed to reduce the suffering for those traders caught on the long (wrong) side of these Wednesday.
Feel free to share it if you’re a fellow blogger, the embed code is on the YouTube page.
Without further delay, here’s today’s video. Enjoy the show!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Swing Trading, Trading Video, Investing[/tags]
Trading Video – Relative Volume and Day Trading
June 30, 2008 at 9:11 pm
Here’s another video of a trading lesson to keep in mind this holiday-shortened week.
Shortened trading timeframes might mean tighter stops and a better ability to manage risk, but there are still some important factors to consider, such as relative volume. Today’s video discuses exactly that.
Feel free to share it if you’re a fellow blogger, the embed code is on the YouTube page.
Without further delay, here’s today’s video. Enjoy the show!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
[tags]Stock Market, Day Trading, Stock Trading, Swing Trading, Trading Video, Investing[/tags]
More on Learning from Trading Disasters
June 26, 2008 at 12:22 pm
The best way to stop a losing streak is to STOP!….Stopping lets your emotions calm down and lets you reestablish your momentum with your intellect.
– Marty Schwartz, Pit Bull
A couple of weeks ago, I received a pretty sad email. The trader who sent it had been losing money over the course of 6 years to the tune of $150k (yes, you read that correctly). He couldn’t stop. On this particular day the trader lost his last $16k gambling on an earnings release (the same gamble I caution against in my trading rules), sealing the fate of his account.
Another trader I know has really struggled to accept losses. Whenever she finds herself on the wrong side of a trade, instead of taking her medicine and stopping out, she often adds to the position and hopes her double-down is well-timed. In the past it has meant going through periods of inactivity while she waits for her stocks to come back, choosing to become a stuckholder rather than a trader. That hasn’t always worked either. Currently she’s stuck in losing trades with her capital tied up, unable to keep her money compounding due to her refusal to accept a loss and move on in expectation of making up for it elsewhere in another trade. She’s now hoping that the market will rebound to bail her out, babysitting those bad trades in the meantime.
Losing Control
Now, I don’t want to be Debbie Downer here 😀 , but the fact of the matter is that it happens all the time. Traders lose their heads, then they lose their way, and then they lose their shirt.
I continue to find reasons to harp on this lesson, and I suppose there will always be examples of the pain, frustration, and opportunity costs associated with letting losses get out of hand (my biggest trading fear). But to those of us who intend to survive, persist and succeed in the trading game, it’s worth occasionally stopping to examine the other side of the coin. After all, the mistakes of others serve as excellent reminders to us of what to avoid.
Get A Grip!
You might be struggling in this market right now, and if so, remember that there are a couple of things you can do. First, stop trading. Close out your losing positions and clear your head for a little while. It’ll be well worth it, both monetarily and mentally. Second, regain your focus. Remind yourself what you’re aiming to do with your trading, what your style consists of, and what you need to see before taking new trades. If you don’t see it, don’t push any buttons! And finally, don’t try to “get it back” quickly. That is the fastest way to compound your problem and double or triple the size of the hole you find yourself in.
It’s been said before that the market will expose your every weakness, and that’s certainly true right now, particularly if you’re biased to trading the long side. This is the kind of market environment that can bring the pain if you aren’t careful or in control of your trading. Fighting the current downtrend we’re in can make for a very tough road to travel.
As this market corrects, if you aren’t short, then cash is the next-best alternative until the technicals improve. So be very careful out there, don’t be a hero, and make sure you’ve got your game face on before getting active!
Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com
