How to Control your Emotions while Trading

I’m about to celebrate my first year of trading stocks and it’s been one wild ride. The past few months have been the most rewarding and least stressful part of my entire journey. I think the most important reason I’ve been more successful is taking control of my emotions. To be honest, I couldn’t figure out how to control them for most of the year, and it caused me to make really poor decisions. When I made emotional decisions it led me to be even more mad at myself because I wasn’t happy with the outcome. I think most of you can relate to some events that happened over the last few months related to the Ebola outbreak. Ebola related stocks went flying and one of them in particularly was Lakeland industries(LAKE). My emotions led me to missing out on the potential of thousands of dollars, and that would of been on a conservative share size. Figuring out what I did wrong trading that stock that went from around $6 a share to skyrocketing to almost $30 in a matter of a couple weeks made me sit back and really look at how I was trading and what I was doing wrong.

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Here’s what I figured out, my emotional decision making was a result of poor risk management. Now that I’ve learned how to manage my risk better my profits have been increasing substantially and my losses have gone down quite a bit. Also as a result my emotions rarely get in the way of my decision making.

So when I go back to assess my LAKE trades I realized that if I had managed my risk better I probably would of still owned shares when it made its crazy move up. Instead I ended up selling because I had too much size and ended up with way less profits than I should of.

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The other type of emotional trading I want to touch on are outside influences that can hurt your profits also. Even when you have your trading under control and your risk defined, allowing outside problems in can easily knock you off course. Over the summer I had to deal with a serious family emergency, and spent a few weeks helping take care of someone who was terminally ill. I did the dumbest thing I could ever imagine, I kept trading. Although trading is my full time job, it wasn’t completely necessary for me to keep doing it, and I should of just stepped away and dealt with a loss of income for that period of time. It’s a regret I have to live with, but more importantly it taught me a serious lesson. From now on even if it’s something not as serious but I know it’s effecting my mood or focus, I know I better step away and stop trading. It only makes things worse and compounds whatever you’re already dealing with.

Emotions will always be there while trading but having a defined plan of risk, regardless of what I think or feel about a particular trade, makes me more confident about any decision I make, whether it turned out to be right or wrong. Also knowing when to step away and deal with any outlying problems and not forcing trades will keep you in the game a very long time.

 

 

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Comments (7)

  1. Susan December 29, 2014
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    • Kevin December 31, 2014
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