Chart patterns and trading strategies aren’t enough to make a sustainable profit in the market. You must manage risk. One key part of risk management is learning to change the way you relate to feelings of stress, excitement and boredom. Even the most experienced traders are aware of their emotional pitfalls and how to regulate them.

Emotions are complex, and the result of individual, unique learned experiences. While no book can teach you how to navigate your personal feelings, here are some common emotions that get in the way of traders making money, and some simple strategies you can use to overcome them.

Panic

A stock price moves against you and panic sets in. Despite all the studying and preparation you’ve done to prove the upside of a price movement, you feel an urgency to retreat from the position in an attempt to prevent losses. You further contribute to your confusion by watching the price action rise and fall, bar-by-bar. Fear mounts as the stock price moves deeper into the red; so you sell your position at a loss or minimal gain. You look back, and the stock is making a run.

How to overcome it

Change your perspective: even trending stocks will never move in the same direction forever. Prices will fluctuate within uptrends and downtrends.

Regulate your emotions: monitor your emotions through dips and allow gains to mature so you can realize maximum profits.

Preparation: enter every trade prepared with a plan. Set stop losses and stop limits to manage risk and reward. Then, trust your stops and your gut, and give your positions freedom to play out.

FOMO (fear of missing out)

A stock starts running and you fear missing out on the gain. The price action is volatile and you’re tempted to ditch your tried and true trading rules in favor of a risky entry. Green bars are growing quickly; so you enter the stock at a position you wouldn’t normally take. You don’t calculate your upside or downside; and you don’t set a stop loss. Now, you’re in the trade and the price has reversed against you.

How to overcome it

Change your perspective: there’s no rush to lose money. A stock will always pull back, giving you a chance to re-enter.

Change your approach: when you feel fear setting in, consider trading a different stock. If one trade doesn’t work out, there are always other opportunities.

Overconfidence

You’ve followed your trading strategy and made some big gains. Comfortability sets in and you ditch your discipline. You’re feeling good about your skill set and start to cut corners. One mistake wipes out all of your gains. Now you’re in the red and struggling to recover your losses.

How to overcome it

Get back to the basics: it’s not too late to get back on track. Remain calm and level-headed about your wins and limit losses by backing up every trade with research.

Stop: take a break after you’ve made a significant gain. Review your trading journal, particularly areas where you’ve learned a lesson. Reevaluate your trading skills and ability against those lessons and identify new areas for improvement (you’ll always find at least one!)

Protect your profits: set a maximum account size and protect your gains by taking any profits that exceed your limit.

Greed

You’ve made some big gains; but it’s not enough. You want more. You feel manic and have an uncontrollable desire to make more money. Strategic position sizing is a thing of the past as you risk bigger chunks of your account in pursuit of larger, more expensive gains. One trade wipes out half your account.

How to overcome it

Stop; and do something else: when you feel manic energy beginning to mount, take a break from trading and redirect that energy into something else. Exercise is a great way to release energy. If you have more than three losing days in a row, sit out. Don’t trade on vacation or while distracted.

Protect your profits: scale down your position size to limit losses. Protect profits by depositing them into a separate account. Use a consistent stop loss and risk strategy.

Chasing the thrill

You’re excited about trading; it’s fun and produces an adrenaline rush. You begin to over-trade, jumping from stock to stock, and strategy to strategy. You’re eager to find a trading style that works for you, but you’re unfocused and your practice is scattered. You never gain mastery of a single method and your account slowly depletes. You decide trading isn’t working and give up.

How to overcome it

Get back to the basics with paper trading: when you feel a desperation to trade a stock, or are simply curious about what it will do, paper trading can be a positive outlet that allows you to explore different strategies while protecting your money.

Focus on improvement: paper trading can also reveal common mistakes and areas for improvement, giving you the space to make incremental changes.

Gain mastery: choose one trading style at the beginning and scale your approach as you gain mastery.

Revenge

You did all of your homework, planning and strategy on a stock. You set your target and stop loss. All your indicators are pointing in a positive direction. You feel good about the trade and decide to take a large position. Unfortunately, soon after you enter, the price falls and triggers your stop, only to reverse and make a big run. You’re out of the stock with minimal losses; but now you’re angry. Rage builds and you feel desperate to get back into the stock to recover your losses.

How to overcome it

Celebrate your wins: while you may have lost money on this trade, you can celebrate your execution. You had a strategy, used stops and managed your risk well.

Acceptance: expect the unexpected. Accept your losses and revisit your trading strategy. Perhaps you scale down your position and set a looser stop loss in the future. Dwelling on the loss will only make it feel that much bigger. Pick a new stock;and move on.

Take a break: no winning streak lasts forever. Treat trading like a business — don’t burn out. After a series of wins or loses, allow your mind space and time and rest. Return to trading with a fresh, clear perspective.

Regret

You did all of your homework and predicted the trade perfectly. You entered and exited almost flawlessly and with substantial gains. However, you forgot to cancel your stop loss and triggered a short later on. You think this was an easily avoidable mistake and feel embarrassed. Negative self-talk begins to percolate, triggering shame and disappointment. You shut down your computer and decide not to trade for a while.

How to overcome it

Don’t give up: losing is a part of winning; even the best traders make mistakes. Hindsight can be a gift when used as a learning opportunity; allow it to shape your trading for the better. Document your errors and identify actionable steps to resolve them.

Give yourself compassion: you can never eradicate all mistakes; the key is to minimize them. Keep track of whenever you avoid a mistake and celebrate when you learn something new or break a bad habit.

Wishful thinking

You spend all of your time in chat rooms reading about stocks other traders are watching. One comment says, “this stock is going to change the world.” Others share the same sentiment; so you decide to take a position. The stock starts making gains right away, confirming the chat room hype. You’re optimistic that it will make an even bigger run. One morning, you wake up to see the stock has gapped down significantly on bad news and you’ve taken a huge loss. Now traders are calling the stock “a piece of crap.” You remain hopeful that someday you’ll recover your losses, but the price falls further and further.

How to overcome it

Do your homework: making money as a trader is about maximizing your probability of winning. Each trader has a unique trading style; and someone else’s strategy may be vastly different from your own. By relying on your own research, you can strengthen your intuition and avoid the pitfalls of bad predictions.

To sum it up:

Successful traders find a balance between logic and their emotional intuition. There is no shortcut here; it takes continuous practice and self-awareness. Through preparation and research, you can ground your emotions and assumptions into proven probability, and transform your wishful thinking into real money.

Get out there and crush it!

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