Trading Psychology

Trade Stocks Without Emotion


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Trading psychology and coping with emotions.


We’ve covered many aspects of trading, from trading setups through to risk reward and risk management, but we only loosely cover mindset, psychology, and thinking in terms of probabilities. Arguably the most important components of becoming a successful trader.


Many different character traits appear through the career of a trader, from fear, anger, confusion, despair, through to over confidence, but the key trait for a successful trader is to trade without emotion. Technical and fundamental analysis will only take us so far, being able to adopt the right mental state and therefore trading with a zen like mentality, is the differentiating factor.


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Most gamblers will approach the roulette table with a positive mentality, but is subconsciously aware that when a bet is placed there is a chance they could lose, but deep down the gambler does not expect to lose, they have a bias of winning expectancy, otherwise why place a bet in the first place?


When this engrained false expectation materialises into a string of unexpected losses, true emotions begin to appear. Positivity turns into heightened focus, and then disbelief, anger, and finally despair.


On the other hand, the casino owner embraces the fact that the gamblers could have a winning streak, this could result in the casino having a losing day or even a losing week, but the casino has a confirmed edge, and over a large volume of bets placed, they know they will win, losses are just part of the business.


The same principle exists in trading. Every trader is aware that when a trade is entered there is an element of risk, either the full position, or the stop loss portion. But does every trader really accept the risk or even think they will lose money on this new trade?


The expectation of most traders is for price to continue its trajectory whilst making money. in reality however, the opposite often happens.


When these failed trades happen several times consecutively in a short period, the trader becomes disillusioned, and realisation confirms a psychological gap, from assuming they accepted the risk, to disbelief when a series of failed trades occur.

The best traders in the world know that the next trade is a random event, therefore a sequence of random events could lead to a sequence of losing trades. But like the casino owner, they understand this is just part of the business.


The hard cold reality of trading is that every trade has an uncertain outcome. Unless you learn to completely accept the possibility of an uncertain outcome, it will be very hard to succeed as a trader.


You must accept the following to achieve a zen like mentality:


“Anything could happen in the stock market”.


“You don’t need a psychic ability for the very next trade in order to make money”.

“There is a random distribution between winning trades and losing trades that ultimately define a statistical edge”.


“An edge is simply an indication of higher probability over a sequence of events”.

And finally.


“Every event in the stock market is entirely unique”.


Once these points are fully accepted, the trader can face the markets evolving uncertainty with a feeling of calm, they become unnerved by periods of drawdown and can therefore trade with zen.