We are all human and we all carry a wide range of emotions. From positive to negative, emotional aspects of our day are inevitably going to creep into our ability to make clear and calm rational trading decisions.
Negative emotions are often the greatest culprit of your clear and calm trading days. Many of us play victim to our emotions and allow them to lead us around like dogs on leashes. Of course, this doesn't have to be the case, but few of us are well equipped to learn how to "select" a better emotion. These negative emotions can feel like traps, weighing you down and absorbing your energy, which you truly need in order to execute a successful day. So what are you supposed to do?
Positive emotions, as well, can lead us to cloudy decisions. It is not as obvious as the threat the negative emotions hold on us, but positive emotions can lead to euphoric emotions, causing a boost of confidence that might entice you to take risks you normally wouldn't. When a person first falls in love, they drive faster. In recent studies completed at Brown and University of Maryland, euphoric emotions have been proven to increase risk taking behaviors, like driving faster or not wearing a seat belt. In the land of day trading, this is about as dangerous as making financial decisions from under a cloud of depression.
The most common feeling of a new trader is panic. For some seasoned traders, panic has become a near constant companion. Panicking and trading really don't go together well and often the two collide with disastrous results. When you are panicked stricken you simply are incapable of making completely rational and objective decisions. Panic leads to impulsive trades and obsessive behavior. Panic usually occurs because either the trader has placed too much stock in one single trade or he or she has over extended and needs some pretty large gains in order to be financially okay.
Never, ever place more money on a trade or a combination of trades that stands to wipe you out. Atlantic City and Las Vegas are for gambling, trading is for methodical and strategic planning and investing. There is a huge difference. Unfortunately many new investors do not completely make the distinction and thus end up in a state of sheer panic as they watch the mortgage, their kids' education, and their retirement tumble down the ticker.
Panic trading often happens as a result of using your emotional compass as a guideline for a period of time. When your emotional compass is permitted to enter the picture, you start making decisions based on something that is no longer concrete. Your emotions are not able to be tracked out on a ticker tape and nobody can determine what is going to happen to you emotionally in the next three hours, let alone the next three weeks. When you make trades based on trackable information, you make sound trades. When you makes trades based on emotional up hills and down hills you make mistakes and hopeful executions.
That doesn't mean that there haven't been plenty of near misses or some really good luck that has blown in the direction of a few desperate traders. But these stories are not the norm.
Maintaining a level head and executing clean and objective trades starts with remaining focused on a picture larger than today, tomorrow, next week, or even next month. Even when the winds of good fortune don't blow your way, you can recover given some time and some calm and focused trading. When the winds of good fortune come at you like a hurricane, you still need to remain calm, focused, and steady in order to prevent over extending your account based on a good streak. Sooner or later the winds will shift, and emotional trades, whether from a positive or negative emotion, are not sound trades.
Author Resource:-
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