Staying disciplined when trading the market is arguably the most important skill that a trader can have. At the same time, maintaining control under stressful situations and keeping a level head is also one of the hardest things to accomplish. People, by nature, are emotional, and if left unchecked, these natural emotions can and will be detrimental to any strategy.
This is why keeping emotions in check is essential when becoming a successful trader. Toni Turner of TrendStar Trading Group offers insight on developing the right mentality when playing the market, which emotions pose the biggest threats, and offers tips on how to avoid them.
EQ: You’ve discussed preparing setups, entries and exit points before starting to trade. One thing we haven’t discussed is the mental approach. Why is getting into the right mindset important when trading?
Turner: Trading with the right mental approach can be the difference between making money or losing it. Each and every time we enter a trade, we should do so with a nimble unbiased mindset. If we feel overly confident, it can go against us because by creating the need to be right. The need to be right is one of the biggest reasons traders lose money. If, on the other hand, we feel unsure of ourselves when we start trading and we're unsure of our trading decision, it can impact the way we look at the market. It's as though we put on glasses and covered the lenses with a gray film. We miss opportunities because we're too anxious to get into them. That is why, ideally, we need to trade with a nimble, neutral mindset and an overall feeling of calm and confidence.
EQ: Chances are, the more volatile your trade is, the more volatile your emotions will be. What are some of the main emotions that traders need to keep in check? How?
Turner: One of the main emotions to avoid is hope. While hope is a wonderful emotion to experience in our everyday lives--certainly, in our social lives and our business lives--in trading, hope can lead to both greed and fear. When we stay in a trade too long, hoping it goes higher, that hope can morph into greed, which stops us from taking profits when we should. Hope can also turn into fear when we trade without a plan or without protective stops. And when hope turns into fear, that fear causes us to do things that are detrimental to our wealth.
Trading on hope, greed, fear and even the different shades of those emotions like anxiety or nervousness, can only lead to losses. I trade everyday. I have taught thousands of people how to trade over the last dozen or more years, and I promise you, these emotions have taken out more traders than any other element. People can have the fanciest equipment and read charts with the best of them, but if they don't have their emotions in check over the long run, they're going to lose money.
EQ: Should emotions ever play a part in trading and investing?
Turner: I suspect that trading and investing are among the only few things in our lives where we should eliminate all emotion. After all, much of the time the market's moves are unpredictable. She can act in ways that totally defy rational explanation. So if we take our human emotional patterns and we tie them to the market's movements, then in fact, what we're doing is we're gambling. And that is certainly not the path to making consistent profits in the market.
EQ: How do you keep your mind clear under pressure?
Turner: In Toni's Market Club, we talk a lot about mentally leaving our emotions in a basket next to our desks before we start trading. We take our hope, our greed and fear, which all of us have, and we put it in a basket by our desk and then we mentally become robots. Then before we enter a trade, we check our minds and bodies for any feelings of stress. Our goal is to feel mentally nimble with no set opinion one way or the other, and to be clear minded, relaxed and confident in our prepared trading plan. Of course, having a plan goes without saying. The only way to approach the market is with a well-thought-out trading plan for each trade. That is how you achieve this clear headedness, this confidence. We could say you are kind of like a boy scout. You're prepared to meet any eventuality.
If at any time, you feel stressed while trading, you should make sure you have hard stops in place with your broker, then get up and move away from your desk and stay away until you feel more relaxed. You should do this so you don't take any action that are unwarranted. Truly, many times I find that the more I keep my mittens off the keyboard, the more money I make. The bottom line is, traders need to know that the proper mindset is one of the most important elements in successful trading. When they conquer that, they are on their way to profits.
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