Trading Psychology – 3 EASY Ways to Control Emotions

Part 6 of Our FREE ‘How to Trade Stocks‘-Guide

Trading without emotions will be the hardest thing you learn!

We are human beings, so it is our nature to struggle with emotions. Controlling them will be the hardest thing you will ever do in trading. We show you three easy ways to control your emotions that will separate you from others and give you an edge in trading.

1. Mind your position size!

Think about money in real life. How would you react if you would have bought a cup of coffee for $5 and you dropped it to the floor? How would you respond if that cup of coffee cost you $1000 and you lost it?

As soon as there is more money on the line in a trade, you will get emotionally tied to it. That is where mistakes happen, and your ability to identify setups may suffer.

An easy way to deal with this emotional rollercoaster is to reduce the size to get into a trade or lower it when it is working against you. Implement a strategy to split your maximum share size. Here is a suggestion:

  • Divide your maximum position size by 4.
  • Create three chunks: 1/4, 2/4, 1/4   For example if your maximum position size is 800, you create a 200, 400, and 200 position size.
  • The first chunk is your starter position you can use to get into a trade aggressively once the trade starts to work in your favor load up with the 2nd and 3rd chunk.
  • If a trade starts to work against you should reduce the chunks until it stops you out completely.

2. Only trade money you can lose!

Only trade what you can lose may sound obvious for you, but for many traders, it is not so obvious. They see the big money that can be made from trading and start investing more money than they can afford to lose.

You should have a secondary source of income so that your income is not dependent on trading. Having extra income will give you the extra safety that prevents you from making emotional decisions.

3. Trade the chart, not your P&L (Profit & Loss)

Always trade with a plan! Watch the chart if your trade works out not your P&L. If you see your Profit&Loss, you will deviate from your plan. You will get out or take your profits too early. Combined with the commissions you have to pay to your broker, this will make you lose money.

Hide your P&L and stick to your plan!

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