Page 28 - Psychology Course Study Manual
P. 28
Emotions Generated By Trading
As traders we not only have to develop technical trading skills, but we also have to develop
emotional skills for trading as well.
Emotional skills help the trader get through equity “draw-down” periods and multiple
consecutive trading losses that ALL trading systems experience if traded long enough. These
tough events in trading will test the emotional fortitude of any trader.
This is where confidence in your tested trading system and trading with money you can afford
to risk will play an important role. If the trader did not test their trading system, then how do
you think that trader will feel after four consecutive losses totaling about 8% of the trading
account’s equity? Now compound this with the fact that it is not money they can afford to lose.
And compound this again if your day trading and losing 8% in one day! And the 8% assumes
you are controlling your risk so that each loss is only a net maximum of 2% per loss. Now, after
all this, do you think they will feel anxiety and stress? I think so! Do you think that stress will
create a good environment for successful trading? I don’t think so! Do you think the trader will
be afraid of taking another trade for fear of another possible loss? Perhaps it might, because
this kind of stress can cause the trader to “second guess” themselves and their trading system.
Traders that trade with confidence will keep trading and not “second guess” themselves or
their trading system.
As a trader you want to eliminate any and all emotions while trading. This even includes
emotions generated by having too many market opinions as well. Emotions never help the
trader! Keep emotions in your personal life and away from trading.
The best way to keep emotions in check is through creating a stress free trading environment
where you accept equity “draw-down” periods and can keep trading through them in a stress-
free state. You do this by testing your trading system or approach, and in my opinion, the best
