Money Risk Trade Management & Trading Emotions
Trading emotions play a vital role in the success or failure of traders. Emotions affect our results and will prove the difference between successful and unsuccessful trading.
Are you one of the Average traders?
You have no trading plan or view.
You have no money management rules
You have no risk management rules or use a Stop Loss
Your prone to emotional swings (price goes up – happy, price goes down – you are sad)
You are nervous most of the time when in a trade
You quickly “give back” to the market your recent gains
You try to recoup losses immediately (revenge trading)
You are glued to the computer screen all day watching every price movement like a hawk
You never review your trade results to follow up on winners and losers.
Here is an easy one: You are losing MONEY!
I want to talk to you about what an average trader is. Unfortunately the majority of people fall into this ‘average trader’ category. Basically, they seem to think that trading is easy and for whatever reason they buy a stock, the stock’s immediately going to go in their favor. Heaven forbid they actually are successful, because now that reinforces that behavior going forward and it really sets up for a major disaster. If you’re an average trader, you have no trading plan or view of trading. It’s just that simple. Most people treat this as a hobby and they have no trading plan to speak of. They have absolutely no money risk management rules. If you’re sitting here reading this and you have no money risk management rules whatsoever, don’t worry. You’re part of the average trader that is out there.
Are you prone to emotional swings? So, price goes up, you’re immediately happy; if price goes down, you’re trying to jump out of a window. Those types of emotional swings are typical with average traders. Are you nervous most of the time when you’re in a trade? Can you sleep at night? Average traders don’t have confidence in their system or their plan so they’re usually pretty nervous whenever they’re in a trade. You quickly give back to the market your recent gains.
Let me know if this sounds familiar: You make $500 on a winning trade. You feel great. And then on the very next trade you get cocky and end up losing $700 and give back all of those gains that you just made to the market and more. This is very common. It doesn’t mean you’re a failure. It just means that you’re an average trader.
You try to recoup losses immediately, also known as revenge trading. Basically, here is how it occurs… You take a modest loss on a trade, let’s say $1,000. Now, you feel you are on a mission. You immediately go out looking for a trade so you can make up for that $1,000.00 loss. You end up chasing a bad entry or for whatever reason you end up pushing the pace and get into a wrong share and you end up losing even more. Does this scenario sound familiar?
You’re glued to your computer screen all day long watching every price movement like a hawk. This goes hand in hand with your emotional swings. It goes up, you’re happy; it goes down you’re ready to beat your head on the keyboard. If you’re stuck all day watching prices and you’re constantly on an emotional roller coaster? Don’t worry. You’re not alone.
How about this one? Do you ever review your trade results and follow up on your winners and your losers? I can guarantee you that professionals definitely follow up on their trades. And if you’re not following up on your winners – do you think this might be a good idea? You have a winning trade and you actually look back at it and say “Hmm, what did I do right in this trade?” How about your losing trades? How about looking at your mistakes and determining where you’re going wrong over and over again? Do you think that’s something that might help you improve your trading? Most people don’t do this and they continue to lose. This is why they’re average traders.
Here’s a really easy one. Are you losing money in the stock market? If you are, you’re like the majority of people, which puts you in the average trader category.
To be a successful trader you need a Trading Plan not based on emotion and have the discipline to follow it. To have this discipline means following a set of rules like a robot without emotion and taking the appropriate action when required. The 4 major components of a trading plan are:
1. What to trade and when – Comes with Education and Experience
2. How many to trade – Money Management also known as Position Sizing
3. When to get out when you have it wrong – Risk Management aka Initial Stop Loss
4. When to get out when you have it right – Risk Management aka Profit/Trailing Stop
“Cut your losses FAST and let your PROFITS run”, sound familiar?
So now you have a trading Plan or set of rules that will tell you what, when and how many to buy and when to get out. How about performance? How do you measure the performance of your portfolio?
How do I measure the performance of each trade?
How does the performance of my portfolio compare to the Stock Market Index?
You have back tested the Money Risk Management rules and find it simple enough to follow. It does result in some losses but overall it has a positive Trade Expectancy.
So what do you do next? Download your FREE 14 day fully functional trial from here.
JBL Risk Manager will help you trade just like professional traders, sometimes better. It will remove emotion and guesswork from your trading decisions.
I wish you all share trading success
Joseph Barrington-Lew has helped 1000’s of novice and seasoned traders understand the importance of using correct Money and Risk Management principles in their share trading decisions over the past 14 years here in Australia and Overseas. JBL Risk Manager integrates with MetaStock format local data. readily available from resellers around the globe and JBL RM was developed to give you the edge over most traders who are not familiar with the correct Money Risk Management principles. Again.