Thursday, April 28, 2011

How to Control Your Emotions

Congratulations! You have decided to venture into the capital markets! The first thing you need to know is that trading is an intense profession and your emotional control will be tested.
When the markets become unpredictable and sweat begins to form on your brow, will you know what to do? Don't worry! We are here to help! Read on for tips on how to control your emotions!

An Unexpected Market Environment

Let's say you have chosen to start your career as a Crude Oil trader. You expect the price to increase in the coming months due to news that China has started working on two strategic oil reserves. You execute a trade for five contracts at $85 a barrel. You expect your investment to return profits in the future but all of a sudden the price drops to $84 a barrel, then $80 and all of a sudden you see the price fall to $70 a barrel.
You start to panic and lose control of your breathing. Your palms get sweaty and you clench your hands together just to see the price drop to $68 a barrel. Before you change your trading strategy or panic anymore than you already have, take a step back from the situation and breathe.

Make The Decision To Have Emotional Control

Just like you made the decision to become a futures trader, you need to make the decision to control your emotions. This is something you need to think about every day. You have to make the conscious effort that you are not going to let your emotions get in the way of your trading. You also need to take steps to be in the right mindset once you have decided to control your emotions.
What are you feeling? Anxiety? Nervousness? Anger? Whatever it is you are experiencing, it could make sense to let it out. Talk to someone. Go to the gym and work out on the treadmill. Once you have released some of that negative energy, you will have a better grip on your emotions for your next trading session.
Also, get a good night's sleep and eat a healthy breakfast. These tips are often overlooked but undervalued. Having the right mindset to approach trading challenges is the first step in conquering your emotional responses.

Understand What Triggered Your Emotions

You can't help how you feel when something doesn't go your way but you can control your actions. The first thing you need to do is figure out what triggered your anxiety and nervousness. In this situation, it was the price movement and the potential risk of loss. By understanding what triggered your emotional response, you can plan for similar situations you might be faced with in the future.
At what price, were your emotions triggered? By figuring out your comfort levels, you can plan ahead for future trading strategies. If you got uncomfortable with your investment when the price of Crude Oil dropped to $80 a barrel, recognize that that will be your limit next time around.
Work your comfort levels into your trading strategy to prevent your emotional control from being tested.

Think Positive!

When you get frustrated or start to panic, your mind turns itself off from the learning process. Don't let your emotions get the best of you! Again, take a step back from the situation and try to relax. Concentrate on something that will calm your mind and lift your spirits. Breathe and think positive thoughts.
Instead of focusing on the price of Crude Oil spinning erratically out of control, focus on your trading account increasing from $10,000 to $15,000.

Close your eyes and picture the amount in your bank account going up. See the numbers on your bank statement increase in direct correlation to how many Crude Oil trades you make. As your bank account grows, think about what you are going to do with that money. Are you going to buy a Ferrari? Take your family on a cruise? Pay off some debt?
Whatever you do, do not panic! Being pessimistic will only hurt your chances of success.

Controlling Your Emotions

Trading professionally is an intense occupation but one you can succeed at with the proper preparation. When the markets react in a way you did not expect, take a step back from the situation. Breathe, gain your composure and make the conscious decision to have control over your emotions. Also eat healthy, sleep well and work out when you have a stressful day. It is important to get all that negative energy out to have a calm day the next time you trade. Finally, think positively!
Just remember that with any new career, there is going to be a learning curve. With our help, hopefully that learning curve won't be as steep!

Larry Levin trades the S&P 500 at the Chicago Board of Trade, now known as The CME Group; the world's largest and most diverse financial exchange. Levin is the Founder of Trading Advantage.com, a leading trading education firm specializing in empowering traders to achieve and surpass their financial goals. He appears regularly on CNBC, Fox Business News and other major media outlets worldwide.

Contact larry at 888-755-3846 or larry@tradingadvantage.com


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