Impact Of Emotions On Trading [October Newsletter]

Did you know that 80% of stock traders fail due to not treating this game seriously?

I love this saying...

“Every now and then a man's mind is stretched by a new idea or sensation, and never shrinks back to its former dimensions.” Oliver Wendell Homes

Trading is like that.

Once this really gets into your core, everything will change.

Keep reading to discover how to keep your cool in the markets and how to cure the trading yips - a condition you may not even know that you have!

Plus, you'll discover the key to hot and cold states in the markets.

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Don't miss out.

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Ever wonder why you sometimes make impulsive trades? It might be because you’re in a "hot state."

Let’s explore how hot and cold states impact our trading decisions.

Hot states are when our emotions run high - fear, excitement, stress.

In these moments, our brains shift into survival mode, prioritising immediate reactions over rational thought. This can lead to impulsive decisions that we often regret later.

Picture a calm morning.

You’ve had your coffee, reviewed your trading plan, and you’re analysing the charts with a clear mind.

This is the cold state, where emotions take a backseat, and logic and reason drive your decisions.

In a cold state, you’re more likely to stick to your trading strategy, considering long-term outcomes and avoiding rash moves.

It’s the sweet spot for making well-thought-out trades.

Here are a few tips to keep your trading temperature just right:

1. Self-Awareness: Start by recognising your current state. Feeling heated? Take a breather before making any decisions.
2. Pre-plan: Develop your trading strategy during a cold state. Outline your entry and exit points, and set stoploss orders. This helps you stay disciplined when emotions run high.
3. Break Time: If the market gets your blood pumping, step away for a moment. A quick walk or some deep breathing can help cool down your hot state.
4. Tech to the Rescue: Use trading tools and alerts to stick to your plan. Automated systems can enforce discipline and prevent those impulsive, heat-of-the-moment trades.
5. Reflect and Learn: Regularly review your trades. Identify when hot states may have influenced your decisions and adjust your strategies accordingly.

Understanding and managing these states can lead to smarter, more disciplined trading.

So, next time you’re about to make a trade, think about your emotional thermometer and trade smart!

Have you ever experienced choice-overload while trading?

I can tell you exactly what's happening... and the fix.

Heard of The California Jam Experiment?

Researchers found that while a large display table with 24 jams attracted more interest, it resulted in significantly fewer purchases (compared to a smaller display with fewer options).

It's called 'the paradox of choice'. Having more options may seem appealing, but it can lead to choice-overload and ultimately reduce the likelihood of making a decision.

So don't aim to get your scan to produce 300 results.

Sure, there might be sparklers in there, but it will drain your energy looking through that big long list.

Aim to get a scan that picks up most of the high-probability trades in the markets.

If your scan is detecting more than 20 stocks each time you run it, you need to tighten your parameters.

Ever felt that pang of hesitation when it comes time to pull the trigger on a trade?

You're not alone!

Many traders experience 'the trading yips' – that moment of doubt or anxiety that creeps in when handling larger sums of moola or facing high-pressure trading situations.

In golf, the dreaded yips is an ailment that has ended careers, shattered passions, and pushed typically rational individuals to moments of sheer frustration and bewilderment.

And it hits traders in the same way.

After talking about this phenomenon on my podcast, Talking Trading, I had a LOT of traders say they'd struggled with this same phenomenon.

Personality types can play a significant role, with perfectionists often finding themselves more vulnerable.

For instance, a trader may find themselves overanalysing every aspect of their trading process, leading to 'choking' as they focus excessively on irrelevant details during trade execution.

So what can you do to help you make the transition to handling larger chunks of $?

Step 1: Visualise Your Future

Close your eyes and picture yourself making trades with confidence and ease.

Visualisation techniques can help rewire your brain to associate trading with positivity, boosting your confidence and reducing hesitation when it counts.

Step 2: Take Baby Steps

Don't dive headfirst into the deep end – instead, dip your toes in gradually.

Start by slowly increasing your trade size and exposure to larger trade position sizes.

You could start with a 0.25% risk level for the first 10 trades, for example, and then with the next 10 trades, work your way up to 0.5%.

This will give you time to grow and adjust to the larger equity level.

With each successful trade, you'll build momentum and confidence, paving the way for even bigger wins down the track.

Train your eyes to look just at the percentage returns you're making, and not the total dollar amount in each trade.

Step 3: Stick to Your Plan

Consistency is key in overcoming the trading yips.

Develop a solid trading routine complete with pre-trade rituals, risk management strategies, and post-trade analysis.

By sticking to your plan and following your trading rules without question, you'll build trust in your abilities and banish those pesky yips for good!

Happy trading!

Louise

P.S. Want to hear 7 reasons why people choose us as their stockmarket mentor ? Sure you do…

P.P.S. A special thanks to everyone listening to our Talking Trading podcast. It's so exciting! We're in the Top 1.5% of podcasts globally as scored by Listen Notes, measured over 177,462,923 podcast episodes. Get involved with Talking Trading and hone your skills.

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