Emotions in
day trading
In order to be a successful day trader as you need to have the right tools, right market direction, and the right trading systems in the same you also need to have control on your emotions because the buy and sell orders initialize from your emotions.
It is totally true that it is not possible to get rid of your emotions completely but managing at some extent will prove beneficial.
According to our experience emotions pals a major role in day trading.
If you have bad or sad mood then your trading may not be too successful.
If you are happy and cheerful then your trading will see its positive effects.
Following are few emotions which play a major role during taking decisions
In order to be a successful day trader as you need to have the right tools, right market direction, and the right trading systems in the same you also need to have control on your emotions because the buy and sell orders initialize from your emotions.
It is totally true that it is not possible to get rid of your emotions completely but managing at some extent will prove beneficial.
According to our experience emotions pals a major role in day trading.
If you have bad or sad mood then your trading may not be too successful.
If you are happy and cheerful then your trading will see its positive effects.
Following are few emotions which play a major role during taking decisions
Fear and greed
Increasing Targets
Moving from Paper Trading to Live Trading
Patience and Discipline
Patience, Decisiveness, and Calmness
Recognizing and Overcoming Stubbornness
Increasing Targets
Moving from Paper Trading to Live Trading
Patience and Discipline
Patience, Decisiveness, and Calmness
Recognizing and Overcoming Stubbornness
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Fear and
Greed
The two main emotions that day traders experience are fear and greed, and while you will probably not be able to remove these emotions completely, you will need to manage them for some extent.
Fear
Fear is the emotion that stops us from doing things that might be too risky. In the right quantity, fear is obviously an emotion that we need, but when fear becomes too great then we can be prevented from doing things that might be necessary.
In day trading, the main fear a trader has is that they are going to lose money. This is a normal fear as no trader wants to lose money, but it is illogical if it prevents the trader from taking any trades.
As an example, a trader might make loose an initial trade, and then be too fearful to make the next trade which should not happen in day trading.
The emotion of fear can be overcome by acknowledging that all day traders have losing trades occasionally, but as long as they are less frequent than the winning trades, there is nothing to be afraid of as there will still be in a net profit
The two main emotions that day traders experience are fear and greed, and while you will probably not be able to remove these emotions completely, you will need to manage them for some extent.
Fear
Fear is the emotion that stops us from doing things that might be too risky. In the right quantity, fear is obviously an emotion that we need, but when fear becomes too great then we can be prevented from doing things that might be necessary.
In day trading, the main fear a trader has is that they are going to lose money. This is a normal fear as no trader wants to lose money, but it is illogical if it prevents the trader from taking any trades.
As an example, a trader might make loose an initial trade, and then be too fearful to make the next trade which should not happen in day trading.
The emotion of fear can be overcome by acknowledging that all day traders have losing trades occasionally, but as long as they are less frequent than the winning trades, there is nothing to be afraid of as there will still be in a net profit
Greed
Greed is the opposite emotion to fear.
The right amount of greed is necessary because it gives us the motivation to work at something, but when we are too greedy we will start doing things even when we know that we should not.
In day trading, greed can make traders to make unnecessary trades, or hold on to positions which are in loss, wait for big profit in single trade and so on.
The emotion of greed can be overcome by following the “Analyze, wait, watch and trade” principle which is mention in our next subsections.
Increasing Targets
Day traders should put their exit (square off) order which is nothing but limit order once they buy or short sell their trade.
This is the right method for winning strategy.
Because traders keep increasing the targets once the share price start moving in their favor but this can be risky. This happens due to greed factor to get more and more profit in single trade.
So book your profits on your already decided targets.
While shifting from paper trading to Live Trading
When you are planning to start actual day trading, once you successfully complete the paper trading practice, then you may get fear while trading because you are using you actual money.
Fear of Losing Money
The reason that your trading system suddenly stops working because the additional emotion that comes while using own real money. The fear of losing one's own money is a very strong emotion, and can cause even experienced traders to make mistakes. Hesitating before entering a trade, moving their stop loss to break even too early, or taking a smaller profit than they would normally, are all common mistakes that are made because of the emotion of fear.
Overcoming the Fear
If you are experiencing these problems then you have keep faith in practice trading practice what you did before doing your actual day trading.
If you would have made profits consistently in paper trading then you need to have faith in your trading system, and follow it exactly and on the other side still if you are not feeling confident then you should go back to paper trading practice.
Patience and Discipline
Professional traders know that their emotions are going to affect their trading whether they like it or not. As a result, they develop personalities that allow them to overcome their emotions and trade profitably. Two of the most important personality traits are patience and discipline, because they allow you to handle one of the most difficult aspects of trading.
Greed is the opposite emotion to fear.
The right amount of greed is necessary because it gives us the motivation to work at something, but when we are too greedy we will start doing things even when we know that we should not.
In day trading, greed can make traders to make unnecessary trades, or hold on to positions which are in loss, wait for big profit in single trade and so on.
The emotion of greed can be overcome by following the “Analyze, wait, watch and trade” principle which is mention in our next subsections.
Increasing Targets
Day traders should put their exit (square off) order which is nothing but limit order once they buy or short sell their trade.
This is the right method for winning strategy.
Because traders keep increasing the targets once the share price start moving in their favor but this can be risky. This happens due to greed factor to get more and more profit in single trade.
So book your profits on your already decided targets.
While shifting from paper trading to Live Trading
When you are planning to start actual day trading, once you successfully complete the paper trading practice, then you may get fear while trading because you are using you actual money.
Fear of Losing Money
The reason that your trading system suddenly stops working because the additional emotion that comes while using own real money. The fear of losing one's own money is a very strong emotion, and can cause even experienced traders to make mistakes. Hesitating before entering a trade, moving their stop loss to break even too early, or taking a smaller profit than they would normally, are all common mistakes that are made because of the emotion of fear.
Overcoming the Fear
If you are experiencing these problems then you have keep faith in practice trading practice what you did before doing your actual day trading.
If you would have made profits consistently in paper trading then you need to have faith in your trading system, and follow it exactly and on the other side still if you are not feeling confident then you should go back to paper trading practice.
Patience and Discipline
Professional traders know that their emotions are going to affect their trading whether they like it or not. As a result, they develop personalities that allow them to overcome their emotions and trade profitably. Two of the most important personality traits are patience and discipline, because they allow you to handle one of the most difficult aspects of trading.
Possibly the most
emotional time for a trader is when their profit/loss is negative, and they are
waiting for their next trade to come along. During this time they will be
impatient and anxious, and they will be desperate to take their next trade in
order to make back the money that they have lost. Most new traders (and also
many experienced traders) will start taking trades that are not part of their
trading system. As soon as this happens, their loss will increase, and will
continue to do so until they realize what they are doing and correct their
behavior.
By developing a personality that counteracts your emotions you will be able to continue making logical decisions.
Patience and discipline are vital personality characters for professional traders.
Being patient allows you to wait for your next trade regardless of your current profit / loss, and being disciplined allows you to take only trades that are part of your trading system and not making unnecessary trades.
Maintain trading Log
One method of learning how to be patient and discipline is to keep a detailed log of every trade that you take. At the end of the day (or week, or month), replay every trade, and compare the replayed trades to your trading log. If there are any differences, you should be able to determine what caused them, and hopefully know what you need to avoid the next time.
Another method of becoming patient and disciplined is to have absolute confidence in your trading system. Knowing that your trading system will make money over the long term can be enough to overcome the negative emotions that occur when you are experiencing a negative profit / loss. The only way to build confidence is to test your trades repeatedly in paper trading. If you have tested your trading system over a significant length of time, and it is consistently profitable, there is no reason to question that it will continue to be profitable.
Patience, Decisiveness, and Calmness
The idea of making a living as a day trader appeals to a large number of people, but not everybody has a personality suitable for day trading. Even people that are successful in other fields (even related fields), often find that they are not compatible with day trading.
Day trading is a flexible profession but there are few qualities that all day traders need to have in their personalities, in order to be successful (profitable) and those are
Patience
Decisiveness
Calmness
Patience
Day trading is performed by sitting quietly in front of a computer, waiting anywhere from a few minutes, to several hours for the trade to come along.
Being able to wait patiently is a necessity; otherwise you will find yourself taking trades that are not part of your trading system and most likely losing money on them.
Decisiveness
Deciding when to enter and exit trades is one of the most basic functions of a day trader, and it is important that these decisions are made as efficiently as possible. Being decisive is vital to successful day trading, otherwise you will only sit and watch trades that you should have actually taken. Being decisive does not mean being bold, and taking trades that you are not sure about, but it does mean acting promptly when a trade does come along.
Calmness
Remaining calm during trading is one of the most important personality character for a day trader, but it is also one of the most difficult to obtain and practice.
As humans, the natural reactions to a winning trade are excitement and joy, and the natural reactions to a losing trade are panic and sadness, but day traders need to control these emotions, otherwise they will adversely affect their trading decisions (particularly the negative emotions).
For example, the panic that occurs after a losing trade might make you take a new trade almost immediately in an attempt to make the money back, even though there was no trade according to your trading system.
Paper trading practice
It is a good way to practice your patience, decisiveness, and calmness during trading, without risking any real money.
After many hours, days, or weeks of practice you will have a good idea of how your personality and your emotions will affect your day trading, but even then, there will still be an emotional response when you start trading live.
By developing a personality that counteracts your emotions you will be able to continue making logical decisions.
Patience and discipline are vital personality characters for professional traders.
Being patient allows you to wait for your next trade regardless of your current profit / loss, and being disciplined allows you to take only trades that are part of your trading system and not making unnecessary trades.
Maintain trading Log
One method of learning how to be patient and discipline is to keep a detailed log of every trade that you take. At the end of the day (or week, or month), replay every trade, and compare the replayed trades to your trading log. If there are any differences, you should be able to determine what caused them, and hopefully know what you need to avoid the next time.
Another method of becoming patient and disciplined is to have absolute confidence in your trading system. Knowing that your trading system will make money over the long term can be enough to overcome the negative emotions that occur when you are experiencing a negative profit / loss. The only way to build confidence is to test your trades repeatedly in paper trading. If you have tested your trading system over a significant length of time, and it is consistently profitable, there is no reason to question that it will continue to be profitable.
Patience, Decisiveness, and Calmness
The idea of making a living as a day trader appeals to a large number of people, but not everybody has a personality suitable for day trading. Even people that are successful in other fields (even related fields), often find that they are not compatible with day trading.
Day trading is a flexible profession but there are few qualities that all day traders need to have in their personalities, in order to be successful (profitable) and those are
Patience
Decisiveness
Calmness
Patience
Day trading is performed by sitting quietly in front of a computer, waiting anywhere from a few minutes, to several hours for the trade to come along.
Being able to wait patiently is a necessity; otherwise you will find yourself taking trades that are not part of your trading system and most likely losing money on them.
Decisiveness
Deciding when to enter and exit trades is one of the most basic functions of a day trader, and it is important that these decisions are made as efficiently as possible. Being decisive is vital to successful day trading, otherwise you will only sit and watch trades that you should have actually taken. Being decisive does not mean being bold, and taking trades that you are not sure about, but it does mean acting promptly when a trade does come along.
Calmness
Remaining calm during trading is one of the most important personality character for a day trader, but it is also one of the most difficult to obtain and practice.
As humans, the natural reactions to a winning trade are excitement and joy, and the natural reactions to a losing trade are panic and sadness, but day traders need to control these emotions, otherwise they will adversely affect their trading decisions (particularly the negative emotions).
For example, the panic that occurs after a losing trade might make you take a new trade almost immediately in an attempt to make the money back, even though there was no trade according to your trading system.
Paper trading practice
It is a good way to practice your patience, decisiveness, and calmness during trading, without risking any real money.
After many hours, days, or weeks of practice you will have a good idea of how your personality and your emotions will affect your day trading, but even then, there will still be an emotional response when you start trading live.
Recognizing
and Overcoming Stubbornness
A large part of being a successful day trader is having the right personality character, or if not, at least being able to control the opposing personality traits. Human traders will always be influenced by their personalities and their resulting emotions, but professional traders have learned to overcome the emotions that are counter productive to their trading.
Stubbornness (inflexibility)
One such personality characteristic is stubbornness.
Stubbornness (inflexibility) causes people to become attached to their decisions regardless of the consequences.
Day traders need to be decisive in order to make their trading decisions promptly, and then act upon those decisions without any hesitation, but they also need to be flexible and able to react when a decision was incorrect.
In order to be successful, day traders need to find the right combination of decisiveness and flexibility for their personality.
Overcoming Stubbornness
Stubborn people usually refuse to admit that they are stubborn, so recognizing that stubbornness is causing problems with their trading can be difficult. Stubbornness usually causes several different trading mistakes, with the following mistakes being the most common. If you are making any of these mistakes in your trading, it is probable that you have some degree of stubbornness in your personality, and that it is affecting your day trading:
Refusing to use targets and stop losses, and certainly refusing to actually place target and stop loss orders
Choosing not to follow a trading system, because you know what the market is going to do
Holding losing trades until the pain is just too much to bear (or even until your brokerage exits the trade for you, because you no longer cover the required margin).
For any other reason, these mistakes are actually easy to overcome, but not when they are being caused by stubbornness. In order to overcome these mistakes, stubborn traders first need to recognize that the mistakes are being caused by a natural human emotion, and that there is nothing wrong with admitting this. As being stubborn is a form of control, it may help to think that by recognizing the cause, you can have more control over yourself, and hence over your trading.
Once the cause has been recognized, trading in simulation will provide time to correct the trading mistakes without risking any real money. Trade in simulation until you are consistently profitable (by consistently, I mean several weeks, not just one day), and then move to live trading
A large part of being a successful day trader is having the right personality character, or if not, at least being able to control the opposing personality traits. Human traders will always be influenced by their personalities and their resulting emotions, but professional traders have learned to overcome the emotions that are counter productive to their trading.
Stubbornness (inflexibility)
One such personality characteristic is stubbornness.
Stubbornness (inflexibility) causes people to become attached to their decisions regardless of the consequences.
Day traders need to be decisive in order to make their trading decisions promptly, and then act upon those decisions without any hesitation, but they also need to be flexible and able to react when a decision was incorrect.
In order to be successful, day traders need to find the right combination of decisiveness and flexibility for their personality.
Overcoming Stubbornness
Stubborn people usually refuse to admit that they are stubborn, so recognizing that stubbornness is causing problems with their trading can be difficult. Stubbornness usually causes several different trading mistakes, with the following mistakes being the most common. If you are making any of these mistakes in your trading, it is probable that you have some degree of stubbornness in your personality, and that it is affecting your day trading:
Refusing to use targets and stop losses, and certainly refusing to actually place target and stop loss orders
Choosing not to follow a trading system, because you know what the market is going to do
Holding losing trades until the pain is just too much to bear (or even until your brokerage exits the trade for you, because you no longer cover the required margin).
For any other reason, these mistakes are actually easy to overcome, but not when they are being caused by stubbornness. In order to overcome these mistakes, stubborn traders first need to recognize that the mistakes are being caused by a natural human emotion, and that there is nothing wrong with admitting this. As being stubborn is a form of control, it may help to think that by recognizing the cause, you can have more control over yourself, and hence over your trading.
Once the cause has been recognized, trading in simulation will provide time to correct the trading mistakes without risking any real money. Trade in simulation until you are consistently profitable (by consistently, I mean several weeks, not just one day), and then move to live trading
