The Key Essentials to a Trader’s Psyche #7: Controlling Negative Emotions

In order to develop the right mindset, to have a trader’s psyche, you need to know what to expect when day trading. You must be prepared for a variety of emotions so that you can monitor them instead of letting them control you. Only by staying on top of your emotions can you stay focused on the key to successful day trading: maintaining a consistently profitable long-term strategy in the middle of many smaller short-term wins and losses, even when these short-term outcomes seem overly distracting. To keep that focus, develop the traits of a trader’s psyche in yourself.

Successful traders do not allow negative emotions to affect their decision-making. Trading is a stressful process, and you will experience many setbacks. Expect them, however, and don’t see losses as indications that you will never succeed. Instead, be prepared to identify your negative reactions and act on them in positive ways.

Successful traders turn fear into gain. They realize that losses are a part of their business, and they expect them. But while they know that some trades will cost them money, they let those same trades become a gain in knowledge. Remember that each time you have a loss, this gives you some guidelines on how to alter your strategy. Perhaps your stop loss needs to be set higher, perhaps you need to alter how you identify trends, or perhaps you need to use new indicators.

The key point is to remember to turn fear of loss into anticipation of learning. Otherwise, your fear can cause you to forget to ask why that trade was unsuccessful and, in the worst cases, to unwisely overtrade to try to compensate for your loss.

Along similar lines, successful traders do not blame anyone or anything for their losses. They accept their setbacks and refuse to dwell on them. Instead, they learn from their mistakes and move on with their trading. Focusing on blame can cause you to feel insecure and lead you to make unwise trades to compensate for your losses. Or you may feel a desire for revenge against some non-existent enemy that “caused” your loss. Both of these emotions will distract you from your real goal of understanding how to revise your strategy based on what you learned from this trade.

Finally, successful traders always take action. They don’t let their fear con­trol their decisions or interfere with their trading. They don’t linger unnecessarily in a losing position, hoping for things to turn around. But neither do they let insecurity prevent them from making trades or acting according to their plan. There is always time to revise your plan and try it again. Day trading requires trial and error, and you should act confidently, knowing that even if you lose money, you will gain insight into how not to lose money in the future.