The hardest thing about trading is not the math, the method, or the stock picking. It is dealing with the emotions that arise with trading itself, along with the ego’s need to be right. From the stress of entering a trade to the fear of losing the open paper profits that you are holding in a winning trade, how you deal with those emotions will determine your success more than anything else after you have a quantified trading system with an edge.

To manage your emotions, you must first adopt a system and method you truly believe will be a winner in the long term. This confidence arises from backtesting and historical chart studies, along with faith in your ability to execute it with discipline.

You must understand that not every trade is a winner, and you should not blame yourself for equity drawdowns if you are trading with discipline.

Do not bet your entire account on any one trade. Position sizing correctly and risking only 1% of your total capital on any one trade if your stop is triggered is the best thing you can do for your stress levels and your odds of ruin. I am referring to the maximum loss here, not position sizing.

With that in place, here are some examples of emotional equations to better understand why you feel certain emotions strongly in your trading:

Despair sets in when you’re losing money, and your trading isn't improving.

Don’t despair; look at your losses as part of doing business and as paying tuition fees to the markets. Focus on executing your system with discipline, not the results. Hope will arise as faith in yourself grows as a disciplined trader.

Disappointment happens when expectations far exceed the current reality.

Enter trading with realistic expectations. What do you realistically expect your annual returns on capital to be, based on similar traders who use your methodology? What can you realistically estimate your drawdown to be based on your win rate and risk/reward ratio? Trading a robust system over the long term with discipline will lead to profitability, but your path can involve peaks and valleys. Understanding the math of what to expect will help curb disappointment.

Regret is caused by the disappointment in a loss that was caused by a lack of discipline.

If you followed your trading plan and lost money because the market did not move in your direction, that is just part of the business, but if you went off your plan and traded based on your feelings and ego, then you should feel regret and stop being undisciplined. You should ensure that, on every entry and with every position size, you have no regrets regardless of the trade's outcome; your job is to execute your trading system with consistency and discipline.

You will enjoy your trading when you have winning trades and no fear of ruin because you are trading with the right position size.

Trading is much more enjoyable when you are risking 1% of your capital in the hopes of making 3% on your capital with a zero chance of ruin. It is not enjoyable when you are putting a huge percentage of your capital on the line in each trade and are only a few bad trades away from your account going to zero.

Wisdom comes from years of successful trading.

To get good at trading, you must trade real money. Backtesting and chart reading do not make you a trader; only taking on risk and managing the stress of real trades can. Wisdom comes from putting real money on the line for years and proving to yourself that you can come out a winner in the long term.

Faith in your system comes from belief in its profitability, backed by backtesting, and from years of winning with it.

While you must hold the opinion of whether any overall trading method is a winner or loser, it is different for an individual trade using that method. Each trade can be random, but the principles of a profitable trading method will emerge over a sufficiently large sample size, rising above the noise to capture trends. Much of the emotional trading can be overcome when you have no doubt about your method. When you hold an almost religious fervor for your method, system, risk management, and your own discipline, you will overcome many of the emotional problems that arise among other traders in the heat of action.

#FedWatch #EarningsSeason #USMidtermElections #BitcoinDropsBelow$80K #BrazilCryptoExchangesMustApplyForLicensesByFriday