Sometimes the market can mess with your head.
You buy into a promising setup right before the stock tanks. Or you exit a stock only to watch it rally.
It’s frustrating. And that frustration can lead you to trade with your emotions.
That’s dangerous for a trader.
A negative emotional cycle can spiral out of control, leading to catastrophic losses.
And while you’re beating yourself up over a trade gone wrong, you could be missing out on plenty of other profitable trades…
Professionals Versus the Rest
The simple truth is that there are going to be times when things don’t go your way.
No matter how much analysis you do, sometimes it just doesn’t work out.
What makes the difference, though, is how you deal with it.
And the key lesson is this: Instead of reacting to what has happened, you need to put yourself ahead of the trade.
That means you need to know how you’re going to manage a trade before you enter it. That includes where you’re going to get out.
If you get stopped out, then you get stopped out.
If you take profits at a certain price level but end up leaving money on the table, you simply bank those profits and move on to the next trade.
Don’t waste valuable time agonizing over what could or should have happened. Don’t rationalize how you were right and the market was wrong.
Doing that achieves absolutely nothing.
Keep Moving
If you exit out of a position just before it rallies, take that on the chin. It’s going to happen to every trader at one time or another.
Just move on to the next trade.
Whether you’re running a big hedge fund or trading your own account, you have a limited amount of capital… and time.
No one can afford to tie up their money in a trade going nowhere – or chase after trades that have already run their course.
As a trader, your job is to keep your money moving into the next promising trade.
But try to ignore what it could mean if a trade wins big.
Thinking that you could potentially pay off your home or student loans or retire early, for example, makes it hard not to attach too much emotion to the trade.
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Stick to Your Strategy
My final bit of advice is to stick with your plan.
The moment you start second-guessing your strategy, you become vulnerable to greed and fear.
An otherwise small loss could snowball into something much bigger. Or a profitable trade could turn into a loser.
Of course, no strategy is perfect… And I’m not saying you shouldn’t fine-tune it after reviewing your results.
But don’t rework it mid-stride… and don’t change it just because your last trade didn’t work out.
And no matter what your specific strategy is, just find the best risk/reward setup. Then close out your position based on a predefined exit plan.
Only by applying this consistently over the years was I able to take the emotion out of my trading.
And in doing so, I finally became a successful trader.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict