Date: 5/6/2021
Author: Chris Hood
Be sure to check out new episodes of my video podcast each week, where my ace pupil Brian Jones and I talk the ins and outs of options trading- and give you insights and strategy that you can immediately put to work for you in the markets.
You just took two full losses on your TSLA positions.
You’re frustrated but ok.
You know you can’t win every time.
Later that day, an unanticipated sell-off in technology smashes two more short-term trades on QQQ.
Four losers in a single day?
Now you’re mad—pissed-off at the market, yourself, and the world.
You want to smash your computer and kick your dog.
Fortunately, you think better of it.
You’ll just have to buy a new laptop, and poor Spot doesn’t deserve that. He’s just been curled up at your feet sleeping.
Instead, you get back on your monitor and start hunting for profits. Looking for any opportunity for a quick buck.
With no thought to your plan, you start trading.
You’ll just win your money back. Right now.
The market isn’t going to treat you like that.
This is revenge trading.
It’s impulsive, destructive, and, unfortunately, all too common. As much as we’ve discussed FEAR and GREED, ANGER can be equally devastating to your account.
I’ll be the first to admit that I’ve gone in fists swinging at the market after losses.
Nearly every time, I’ve landed up worse off for it.
Emotional control is the absolute key to trading success. It’s more important than any set-up, chart pattern, or technical indicator.
If you are impulsive, irrational, and undisciplined, you will never be successful.
Miyamoto Musashi, one of the greatest warriors who ever lived, understood the importance of self-control.
In his ‘Book of Five Rings’ he writes:
“In strategy, your spiritual bearing must not be any different from normal. Both in fighting and in everyday life, you should be determined though calm. Meet the situation without tenseness yet not recklessly, your spirit settled yet unbiased. Even when your spirit is calm, do not let your body relax, and when your body is relaxed, do not let your spirit slacken”.
Heed these words.
As a trader, you must develop a plan and set of rules to guide you. Then you have to follow those rules, and that’s where emotions can get in the way.
Self-reflection will help you get control of your emotions.
After every trade you place and every trade you exit, you must answer this question:
“What caused me to do that?”
If you’re able to point to a specific set of rules that guided your action, then regardless of whether you won or lost, you’re on the correct path.
Making changes to your rules is not difficult. However, if you didn’t follow the rules, then you let emotion take over.
Trading on emotion is a serious problem and one you MUST address early.
Often all it takes to correct this is to acknowledge it.
Hold yourself accountable.
Write down on paper that you took profits too early because you were scared you’d lose them.
Make a note when you were greedy and stayed in a trade too long because you wanted just 5% more money.
And if you find yourself trading angrily – make a note of that too.
With this data, you’ll begin to learn your emotional triggers and how to overcome them. The more you reflect on yourself, the better you’ll be as a trader.
So stay calm and trade on.
Next time we’ll get back into the nuts and bolts of technical analysis – chart reading.
