Most traders understand that trading can be influenced by their emotions. To stay calm and directed throughout the trading day, professionals use well-recognized techniques to keep calm and make decisions based on reason, not their gut.

Here are 10 tips from the pros to manage your emotions while trading:

• Don’t act on anger. When you’re angry, hold out, wait until reason takes hold. There is no worse trade than a “revenge” trade, in which a trader follows up a loss by jumping right back in to recoup. Consult your trading journal to get back on track.
• Don’t marry your positions. It’s easy for a trader to get stubborn, and to hold on to a trade just because he ‘hopes’ it will turn around. Close down a bad trade as soon as possible, take your loss and move on. Your trading journal will suggest the next move.
• Follow each trade with a break. Trading goes on at a rapid pace, so don’t get caught up in the action. Take a moment to think about something else, and then come back and deliberate. Now look at your trading journal to get the next idea.
• Set a fixed point at which you stop. After three, four, five or whatever number you choose, stop for a good long break. It’s when one trade follows another that most mistakes happen. Consult your trading journal and review your strategy.
• Don’t keep track of profit and loss. Doing the math on your earnings will only get your emotions working. Concentrate on your trading strategy, and review your trading journal to develop it. Then, at the end of the trading day, you can check out how well or poorly you did.
• Keep your mind on the plan. Don’t let the results of a few trades change your overall strategy and approach. Stick to what you have learned and what you have planned – use your trading journal to develop your next moves.
• Don’t confuse prudence with fear. You want to trade prudently, using logic and reason. This may make you hold off on a trade. But make sure that prudence, and not fear, is behind your decision. Fear can wreck your trading by keeping you from making a trade. Use your trading journal to see if the trade makes sense, follows previous wins, or if the trade just doesn’t make sense.
• Watch out for greed. Greed can make you stay in a trade when you had planned to exit, hoping to milk it for a little more profit. Such trades risk turning out badly, just when you thought you were winning. Use your trading journal to judge the best exit points based on past behavior.
• Manage your stops carefully. A cautious approach to stops and limits will keep you from making rash decisions. It hurts to get a trade stopped out, but over time you will save money on losses. Your trading journal can give you useful comparisons on levels for stops.
• Don’t give up. There comes a point in every trader’s life when it just doesn’t seem worth it anymore. Don’t let yourself be intimidated. Trading is tough, but you can win.

In each case we discuss here, the trading journal is our best friend. No trader should be without one. Especially when that bad feeling takes over, the trading journal will remind you of all the things you’ve done well.

Anyone who trades stocks seriously will tell you that trading is frustrating and provoking thing to do.

There are days when the market simply makes no sense, and the trade you bet on goes sour for no logical reason that you can see. That’s frustrating, and most traders get angry when this happens. They break their chair, or they pound their fist on the table, or worse…it’s a good moment to leave them alone…

This writer remembers shorting a stock, and watching go down right to the exit point when, for no reason at all, the stock suddenly shot up nearly a hundred points. Don’t ask what happened to my computer.

But that kind of reaction doesn’t get you far. You can’t help getting angry – no one can. It’s a human emotion we all share.

The question is: Can you make that anger work for you?

Anger doesn’t have to be a purely destructive emotion. It’s possible to channel anger into energy that makes you more productive. No one claims that this is easy, and it’s not. But it can be done if you take the right steps and use the right tools.

The key to channelling anger is to not try to control it. Don’t try to suppress your anger, because that just makes it worse. Instead, try to think about your anger, turn into it and let yourself feel it as much as possible. The secret is to lean into your anger, feel it, and then use it.

When you feel that surge of energy, and you’ve let it flow, then put it to work. This doesn’t mean jumping in and doing something rash. On the contrary, let the anger drive you to a solution, and positive action.

As a trader, start asking yourself the relevant questions.

• Did you enter this trade at the wrong point?
• Were there external events affecting the market today that hurt your trade?
• Were you trading on your strategy, working to your strengths?
• Did you make a mistake in your overall trading strategy?

To answer these questions, your most useful move is to consult your trading journal. Using your high-quality trading software, you research similar trades. You review the conditions and compare them with those of the market today.

And you start finding answers, and this makes your anger turn into energy that you put into figuring out what went wrong.

Your trading journal is one of the best tools available to help you deal with the anger and frustrations of trading. And to help you put these emotions to work for you.

So you’re energized, and hard at it to make things better. You’ve channelled you anger into productive work. And you haven’t let it wreck your judgement.

The next step is to channel that energy into a new trade. Again, your trading journal puts you in touch with your overall strategy, and helps you to compare previous winning trades with those you might consider making now.

What is Trading Psychology?

Trading is an intellectual activity, one based on reason and logic. But trading is also about our money, and taking risks with money – even managed risks – incites emotions. Even the best, most professional trader must control his or her emotions while trading.

Trading psychology examines the ways in which we are affected by our emotions while on the market, and finds ways to control them.

Classic Emotional Errors while Trading

Experts on trading psychology tell us that there are some big mistakes that can be avoided in the effort to control emotions while trading.

The most obvious is trading more than you can afford. There is no more certain way to trigger fear of loss and anger when losses occur than by putting large sums at risk that you actually need. No trader can manage risk under these conditions. Fix a trading budget, and stick to it.

Another classic mistake is to overtrade. It’s terribly easy for a trader on a winning streak to make too many trades, thinking that the good strategy that has brought profit will hold up no matter what. The trader who is enjoying a winning strategy is earning his profit; the trader who just makes unconsidered trades in the hope they’ll work just as well is riding for a fall. Emotional control will help to keep you from making this mistake.

Then there is the “paralysis by analysis,” as one expert puts it. Traders should carefully analyse the market and apply trading strategy. But a trader can spend endless time and effort in study and research, and then never make a trade. After a certain point, there is only so much thinking that one can do without making a decision. Many traders, particularly after some losses, fall into this trap. It is terribly hard to risk one’s money after losing, but if one is to be a trader at all, emotional control must help you to finally pull the trigger.

Controlling Emotions with a Trading Journal

How can a trader control emotions and keep them from interfering with trading success?

One of the surest ways is to keep and use a trading journal. This is a record of all your trades, one that includes all of the details relevant to making the trade, from the price you bought or sold the stock to whether you were angry, or cool-headed at the time.

High-quality trade journaling software makes it easy for a trader to keep such a journal, providing user-friendly input for all the necessary information. And such software enables a trader to review the trading history based on any aspect that is of particular interest.

When emotions distract you from trading, call up your trading journal, and look for similar trades to the one you’re about to make. Or, if you feel like you might be overtrading, review the journal to compare the strategy you worked out with what you are doing – are you on track? Do you feel like trading more than you can afford? Your journal will remind you of the strategy you have been following, and help you to keep the risks at levels you originally set.

A trading journal can help you to keep emotions under control, applying trading psychology in the most useful way.

Greed, some say, drives us all to make more money. Not so, say researchers at State Street, who reported recently that investors who have a high love of money also have the worst financial outcomes.

The same is unquestionably true of traders who are driven by greed. Remember, ‘greed’ is not simply desire for profit – all investors share that wish. Greed is the love of money for its own sake, the need to have more, more, more…

Greed often drives stock traders to make some classic mistakes. For example, suppose you have a trade that is working just as you thought it would. Your strategy is playing out in just the way you planned it, and you are approaching the exit point. Now Greed steps in: Couldn’t you milk this trade for just a little bit more? Maybe you were too conservative with predicting the exit? So you keep the trade working even when it reaches the profit level you expected, and, more often than not…the trade goes sour.

Or, you’re having a pretty good day, winning with most of your trades. You’re about to stop, when Greed steps in: Why don’t you make a few more? You’re now going beyond your strategy, and you’re also probably tired and not thinking too clearly, but, with Greed in the driver’s seat, you still make those extra trades. And they mostly go wrong.

As the State Street study points out, Greed has another classic effect. Greed can turn you into a hyperactive trader, one who makes far too many trades to succeed. Driven by Greed, the hyperactive trader just can’t stop finding opportunities (even when they’re not there) and making trades. The result is usually good news for broker commissions, but not much result for the trader.

Greed is an emotional state, and when it drives your trading, Greed steers you away from all your thinking and planning to do things you shouldn’t. In fact, Greed can wreck your carefully planned strategy, and also push you to invest more than you can afford. This starts a spiral of fear and greed, as the need to recoup losses on money that you couldn’t afford to risk drives you to make more trades unwisely. Greed can have the broader effect of making you wait too long to save and invest, or to not save at all.

Which is why people in rich countries like Switzerland and Norway tend to be the least greedy. In the good ole USA, however, we score close to the top on the State Street Greed scale. This is natural, the researchers say, because caring about business and profit is part of our culture.

So, as a trader, you have to fight Greed. This means controlling your emotions, and there’s no better way to do that than to use a trading journal. High-quality trading journal software can make it easy for you to record all your emotions while trading. When you review the journal before making a trade, you can gauge how Greed has interfered with your trading in the past, and avoid making the same mistake.

A trading journal helps control emotions in stocks investing. Use it to cut Greed down to size.

In the volatile economy we now live in – the “New  Normal,” as it’s called – staying on top of the market is crucial for stock trading success.

The “trend is your friend,” but trends change faster than they used to, because, in a globalized economy, there are more trendsetters than there were before.

Recognizing these trendsetters, and understanding what the consequent market movements will be, requires a historical view of market performance.

Then, building trading habits to respond to trends demands self-knowledge, an understanding of what factors in your own outlook and reactions can be tapped to perform well.

Trading Psychology makes you successful

That is the psychological element in building effective responses to market trends, and it’s just as important as the know-how aspect of successful trading.

Discipline

A good trader starts out with discipline – that is, you must make up your mind to work at your trading. Just trying to win on some trades does not make a trader. An overall plan, with a view on market evolution, global and local economic movements, and a well-determined understanding of where the market is going are all prerequisites to trading – meaning that you develop these before you put a dime on a stock.

Judgement

You will often hear stock trading compared with gambling, but it’s not. Stock trading is a form of investment, just like putting money into real estate or Treasury bonds.

The difference is that stock trading requires different skills. Working at these skills makes you respond faster to the market. Understanding the level of risk makes it possible to take managed risks. It’s all about developing judgement.

Percipience

A trader has to stay aware of everything that might affect the trades. This means following news events, but also analyst reports, economic indicators, and sentiment shifts. A trader has to know if, for some reason, risk-on has turned into risk-off sentiment.

The Trading Journal builds discipline, judgement, percipience

One of the best tools to help a trader build good psychological habits for trading is the trading journal. High-quality journal software first makes it easy for you to keep detailed trading notes, and then gives you the means to research them.

The discipline to keep a journal carefully, providing all the facts and observations that are relevant, is in itself good psychological preparation for trading. But, more important, studying past trades brings out specific points in your overall strategy. First, are you applying it consistently? Second, do you need to make changes? The journal will provide an answer to these significant questions.

Reviewing past trades, and finding patterns in which you repeatedly made mistakes, helps build judgement to avoid those mistakes in the future. With increasing sureness of judgement, you can respond faster and with greater accuracy to market trends.

And, as you study your past trades, you find gaps in your knowledge and technique for quick response. Perhaps you regularly did not take a particular trendsetter into account? Perhaps you ignored certain economic indicators that in fact made a difference in market trends?

Your high-quality trading software will help you find the gaps, and fill them, to build good psychological habits for trading.

What do you do when you’re trading, and losing money? When a whole series of trades goes wrong?

Do you get mad? Pound the table? And then jump right back in with another trade?

Or do you get nervous? Freeze up? Stop trading, and just wait until you feel better to start again?

Anger or anxiety are the two typical reactions traders give when they are on a losing streak. And it happens to all of us, because no one can win at trading all the time.

The trouble is, neither anger, leading to hasty trades, nor anxiety, leading to freezing up and missing opportunities, is a constructive reaction.

But can you learn to stay cool when trading goes wrong?

Trade your mind, not your gut

Experts tell us that emotion is the root of most poor choices in trading. You have spent time working out a strategy, trying it out, finding winning combinations, and then, all of sudden, nothing seems to make sense anymore.

Getting angry about it and then jumping into a trade intended to recoup your losses makes you feel better for a few moments, but it neglects the first rule of stock trading:

If you give the market a chance, it will certainly screw you.

So that blind, angry stab at a trade is almost certain to fail. And then you’ll be even more angry.

The Solution

Instead, when you feel that anger rising, that’s the time to call up your trading journal and have a cool-headed rethink of what you’re doing. Has your strategy gone wrong with similar trades in the past? Your high-quality trading journal software allows you to zero in on the trades that went wrong before, and, if you’ve taken careful notes on each trade, allows you to cool off and recalculate the strategy.

The trading journal is your friend when anger threatens to take over. Keep a good journal, and it will help you to cool off and stay on track. 

Don’t let anxiety build

But anxiety is just as much a foe to your trading strategy as anger is.

We all become anxious when we feel there is something threatening us that we cannot deal with. When the trades start going wrong, it’s only natural to start to worry, to let those nervous feelings build and to let them take over.

So you see an opportunity for a profitable trade, but then you think – do I dare? I’m not doing well, so maybe I should hold off.

Those irrational feelings of anxiety build up to a point where you are no longer capable of action. And so, one good opportunity goes by after another.

The Solution

Here again the trading journal software can help you get back on track. You look back at the trades you’ve made in the past when you’ve felt anxious – because your high-quality trade journaling software allows you to search for them.

And you calm down. Your anxiety is relieved, as you get back in touch with your trading logic. You start analyzing what’s been going wrong, and you find a new approach.

The trading journal is also your friend when anxiety takes over. Or, in any situation where your emotions are interfering with your trading.