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Fear, hope and revenge: Don't let your trading become a soap opera

by , 27 January 2014

There are so many trading books on stock market strategies, money management and general knowledge on trading the markets.

And funny enough, you could read every single strategy in every trading book and still fail as a trader!

Text-books often forget to mention the three vital emotions that can either make you or break you as a trader!

Let me show you how to overcome these emotions so you can be an even more successful trader.

Emotion #1: Fear

“Fear over-rides all rational thinking”.

When we get fearful over something, panic starts to kick in which can lead you to making poor trading decisions.

Fear is simply a survival response to try to protect ourselves from harm…

But with trading, it’s a different story!

Fear most times than not, leads to portfolio devastation.

No one likes losing when they trade and understandably so. But losing is part of the reality of the markets, and that is how it will always be.

That’s why you should only risk the amount you’re willing to lose…

So, if you’re risky by nature, maybe you’d want to risk 5% of your portfolio. But if you’re like me, more risk averse, I’m only willing to risk a maximum of 2% of my portfolio in any one trade.

If I risk anything more than 2% my fear for my portfolio grows which can be detrimental to my trading.

Emotion #2: Hope

This emotion is probably the most dangerous when it comes to trading.

This emotion can stop you from taking profits on a winning trade and keep you in a losing position longer than your emotions can handle…

When a trade is going against you, you’ll see patterns, levels and reasons to keep you in your trade. This can result in a huge loss on your portfolio!

The trick is to stick to how much you’re willing to risk no matter what and how much you’re hoping to gain, no matter what…

When the market hits either one of those levels, get out and prepare for the next trade!

It’s not about the one trade that will make you wealthy but the countless trades later!

Remember, the stock market couldn’t care less about what you hope for and what is in your best interest, so just keep to your levels with strict discipline and you’ll come out as a trading samurai!

This will eliminate the hope aspect out of your trading which will lead you to trading success in the medium to long run!

Emotion #3: Revenge

Revenge can change your trading decisions for the future, which can lead you to chase your trades.

So if you were disciplined and you got out of your trade as soon as it hit your stop loss stop loss, then congratulations for keeping strict discipline to your trading strategy.

But if you wanted to make up for your losses, and you just reversed your trading positions then this is dangerous for your portfolio.

You’re feeling revengeful and this is dangerous!

Revenge-trading can lead you to t portfolio destruction because you’ll be over trading without any winning strategy in place.
But here’s what I say…

Let by gones be bygones, and rather wait for the next high probability trade to line up again!

Focus on the future trades which have a higher chance of winning rather than your revenge trades!

The trick is to keep practicing and over time, you’ll overcome these three emotions and you’ll see your trading success improve drastically.

Always keep in mind

“Wisdom Yields Wealth”

Editors Note: If you'd like to boost your trading performance, success and learn more top insider tips and tricks Timon has learnt over the last decade then follow him on Twitter @timonr. 

Fear, hope and revenge: Don't let your trading become a soap opera
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