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How To Avoid Emotional Trading

Is it possible to avoid emotional trading? I asked myself this question many times.

I thought that in order to be a successful trader, you need to learn to be emotionless. Kinda like a robot.

But can you really turn emotions off? Can you really avoid them?

When I think of this I picture an episode of the “Walking Dead” – like emotions are the zombies that are trying to chase you, and you’re busy running away from them. But the twist is that you are the zombie- because emotions are a part of us! They’re not something that you can run away from.

So rather than trying to run away from or AVOID fear or greed, etc., it’s better to understand where these emotions are stemming from. In order to get to the root of the feelings, here are THREE questions to begin asking yourself today to avoid these zombie emotions and learn how they can work for you.

1) Ask Yourself Why?

If you’re in a trade or you see the market plummeting, you may suddenly feel fearful. You start to get a little on edge, and you begin to get a bit tingly. Ask yourself why? What are you seeing, what’s causing that reaction in you? The more that you’re able to understand why these emotions are coming up, the better you’ll be able to change the narrative for yourself. When we think of the news and let’s talk about the coronavirus, that’s the big topic of the day. If everybody’s screaming that the coronavirus is going to kill us all and the market is plummeting as a result, then you might see and feel a lot of fear, right? But then if you’re able to understand the emotion and where its coming from, when you look at the charts you’re able to see potential opportunity rather. Clarity is what we’re after!

2) Where Would the Hope Start to Come Back?

When you know the emotion of the market, that puts you in the driver’s seat where you’re able to understand the hope, fear and greed manifesting itself right before your eyes. And it’s right on the chart. Through the chart you can see how everybody else is reacting, and that can give you a better sense of the current emotion of the market. You’ll be able to understand where greed would start to come back.

But the greater question to ask yourself is this: Where would the hope start to come back?

When you’re able to see that, that’s how these areas of support get built. And once that level is tested, then you can say, “All right, there could be a bounce right here. I’m going to be ready for that.” That’s how you’re letting the emotions work for you. The emotions are not using you, but you’re actually using them. And you’re seeing that on the charts.

3) What are Your Beliefs?

You now have a better understanding of the mood and emotions of everybody else, but you also need knowledge of yourself and your emotions. Something vital that I’ve learned is that you’ve got to go through your beliefs. I wrote an article called The Four Wall Prison of a Trader’s Mind. Here is the link for the full blog post: https://marawealth.com/the-4-walled-prison-of-a-traders-mind-trading-mindset/

One of the things that I walk you through is a Beliefs Exercise. Here are two steps that can help you get started, but I recommend you check out that earlier post when you get a chance for the full exercise:

Step One:

Grab some paper and a pen, and start writing out your different trading beliefs. You literally have hundreds of them swimming around in your head. Start writing them out. Perhaps they’re things like:

“I will exit here.”

“I will buy it when X, Y, and Z happens.”

“Oh, well I maybe think the market is rigged.”

Perhaps you think that there is a lot of insider trading. Maybe you feel that it’s hard to make money in the market, or you think that the market is an infinite stream of opportunity. Maybe you think that you’re a fantastic trader. Well, whatever your beliefs are, write them all down.

Step Two:

You’re going to start questioning every single one of these beliefs and ask ‘how does this belief help me?’ What does it get me into? What does it get me out of? Ask yourself, what happens if I continue to hold this belief? How will my trading look in another year if I hold onto this belief? How will it look in another five years if I continue to hold on to this belief?

By digging deeper into these questions, then you can start to see how some beliefs are going to be useful for you, and some of them might not be. Some of them you might need to change. And then you ask yourself, “Well, if this belief isn’t useful to me, can I let it go?”

Some may be able to flat out say, “Yes, I can let go of that! It’s like believing in the Easter Bunny.”

Or you might have a tough time letting go of that belief because maybe you’ve believed that for years. Perhaps it came from a parent. Or maybe you spent a whole bunch of money on some guy’s course and you don’t want to let go of this belief because there’s a lot of money that you paid for it and now you realize it’s not that great, but you know it came from some guru, right?

By questioning these beliefs it will lead you to a better understanding of yourself and the choices you are making in your trading.

Questions Lead to Answers

Going through those kinds of thought exercises is how you’re going to understand your beliefs. It will also help you explore your mindset and where these emotions come from. And by doing this work, you’ll be able to work with your emotions versus becoming an Emotional trader. And that my friend, is the real challenging work of being a trader. But, the good news is you can do it! Start by asking yourself the above questions today!

If you need guidance on how to get started, check out my coaching page and see if 1 on 1 coaching is right for you.

Here’s a video I made about Emotional Trading!

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Three Point Thursday Newsletter: Mike’s “Lightbulb” Moments to help you succeed in the market.   https://marawealth.com/three-point-thursday-newsletter/