Stocks & Commodities V. 29:1 (82, 80): At The Close by Brandon H. VanLandingham

Stocks & Commodities V. 29:1 (82, 80): At The Close by Brandon H. VanLandingham
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At The Close by Brandon H. VanLandingham

So what can be done to help minimize emotion within our trading? The answer is in our trading process.

Has this ever happened to you? You go long the market or a particular security and it immediately goes down; you go short and it immediately goes up. That is two back-to-back losses. Now extremely anxious, you ignore your trading rules and skip the next signal and of course that trade immediately becomes profitable. You hesitate whether you should take that last position this far after the trade signal. You continue monitoring the trade you failed to react to in the beginning, and now see a support and resistance trend developing. Every time the price pulls back to the support level, it rallies off this bottom. Your trading rules are telling you to sell the position (which in this situation means not to enter a long position), but you know better and place your trade anyway, ignoring your trading rule.

Just as you enter the trade, the support you previously noticed is violated and the price of the security is now below this level. Another losing trade has begun and you just canít sell out of the position, even though your experience tells you to cut your losses. Now you are desperate and begin looking at a conglomerate of other trading rules and technical indicators to justify your decision to hold a losing trade.

This may seem a little exaggerated, but chances are an experienced trader has lived through a few trading cycles identical to the one described. Emotional decisions are a traderís worst fears come true.

HOW DO YOU ELIMINATE EMOTIONS?

Some traders believe that by subscribing to a particular trading system or by interpreting several technical indicators, they are eliminating emotion from their trading decisions. In some situations they minimize emotional decisions, whereas in others they only mask them. I have noticed that after a losing trade I concentrate on recapturing the loss. I take on more risk by bending my trading rules in order to enter a trade earlier or hold a trade longer than I otherwise would, letting the emotion of recapturing a loss take over.




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