This is a true story of what happened to me today. I can sum it all up with one picture of what I was trying to suppress while in the last trade about 30 minutes ago…
Now why did I, and several other people in my group, go through these emotions? What can be done to stop these types of feelings while in a trade?
Here is the story… Today, a fellow trader friend named Hector called out a trade in my private chat room. He stated, ” EURJPY just fired off a signal.” I took a look and the signal did, in fact, fire off so I jumped in. Several other people jumped in as well.
This trade led to everyone, including myself, flip flopping with their emotions as the trade did a technical move that we call a Flip Flop. As priced moved against us, I felt my heart start racing. I felt my breathing get heavy. As price moved back in our favor, I felt a calmness and ease. Then it went against us again and back in our favor. Back and forth. Back and forth.
It was an emotional roller coaster. I finally sat back in my chair. Closed my eyes for a minute, and in the words of a soldier, whispered to myself, ” Ryan, remember your training and you will be fine.” I opened my eyes again and I was fine.
What is this training I speak of? I will answer that in 2 parts… Demo and Live.
In live trading, you have so many emotions going all different directions as long as you are in the trade. In demo trading, point blank, you don’t. You may think you do but you will only realize that demo emotions are about 1/20th of live trading emotions.
Why is this, though? A trade is a trade, right? Wrong! In demo trading, you have nothing on the line. Your dollars are not on the line. As an educator, your reputation is not on the line. In Live trading, everything is on the line. A wise man once said, “Money perverts everything.” This is true. When money is involved, your emotions are affected way more than just ‘testing’ an idea.
So how do we learn to control our emotions? How do we deal with the fact that on almost every trade, if we are not careful, we could be on this roller coaster of nonsense thinking? How do we keep from second guessing? What is this ‘training’ I speak of?
Well point blank, several years ago, I started meditating every day. I started the whole positive affirmations stuff. I got on the band wagon of the law of attraction and all that jazz. It ALL works to help curb my emotions during a trade. The ONE thing that helps more than anything else, HANDS DOWN, is the process detailed below…
1. Back Test a system for at least 1000 trades over multiple securities.
2. Did the test produce profit?
3. If yes, then continually back test every day to build your confidence level.
4. Live test in Demo for a while.
5. Did the demo test produce profit?
6. If yes, then still continue to back test every day.
7. Live test with a small amount of money.
8. Did the Live test produce profit?
9. If yes, then still continue to back test every day while trading live.
10. If you ever feel more emotions than you can handle, go to step 1 and start again.
Back testing is the key to profitability. It will show you what works and what does not work. By back testing, you will be able to see how many times in the past, your signal worked or did not work. You will be able to see the market conditions that created winners and losers. You can use this information to build your confidence in a given system. You can also use this process to validate if a system works or not.
Another training I do, which I referred to above, is meditation. I try to keep my mind strong. I keep my mind for second guessing. Meditation helps with this process. Sometimes meditation can take some time to get used to but once you can get yourself into the zone, you will be amazed by the progress you make. You will soon be able to, almost automatically, turn on and off emotions with just a thought or an action of some sort.
One of the biggest mistakes in trading is trading too large. When you trade too large, your emotions will take over and totally screw you. Trade small. One of the things I tell myself on a consistent basis is this, ” So what if I lose this trade? I know the system works. Losers are part of the business.” When you know losers are going to happen and expect them, it is not so bad because you are expecting them.
If you are not trading too large for your account size, then a loss is no big deal.
In conclusion, Always know the following before any trade…
1. The reason you are entering
2. Your take profit level
3. Your loss level.
Know these things Beforehand. Write them down on a sheet of paper.
Knowing how your emotions affect your trading is important. Once you know the emotional level of your own mind, you will be better equipped to gain control over it. Below is a resource that I still use on a daily basis. Every night before bed, I will go into my own little world for a bit…
Alrighty, Until Next time!