The Emotional Roller Coaster Of Trading

These past two weeks of trading have me feeling as if I was on an emotional roller coaster because of the swings I've experienced. I came into the week with large open short profits in SPY, DIA and QQQQ only to see them vanish and actually turn into losers. Then I bought some oil and gold and made it back.

I guess when the market gets volatile, the emotional charge (good and bad) increases as the market decides where it wants to go. Obviously the more money we have at risk, the more our emotions come into play.

This past week though really got to me, not so much because of the P/L swings, but because of the strong opinion I had about the stock market going down. Having a strong directional opinion I think is what puts stress on ourselves when reality takes the market in the opposite direction.

So, what can we do to help reduce some of the emotions of trading. First of all I don't think we can ever eliminate the emotions of trading. In fact, if we did eliminate them, some of us might actually not want to trade anymore! That's right, some people enjoy the emotional rush they get when money is on the line. I personally trade to make money. That's my main reason for trading. I also find great satisfaction in trying to figure it out. I view the market as a puzzle and what I'm trying to do is see the picture before anyone else.

So for me the best way to reduce the stress I feel when trading is to not become so emotionally attached to my opinions and to think in terms of probabilities. I don't care how good you are, most people on average are right on about 50% of their trades. I know dozens of large traders over the years, and most of them are correct in the market anywhere from 40% to 60% of the time. Famous trader Steve Cohen said that his best trader in his office is only correct on about 65% of his trades. So 50% in the long run is the average based on my observations.

When I put a trade on, I must remind myself that there is a 50% chance of me making or losing money depending on which way you want to look at it. If I accept that, then when the trade doesn't work out, I'm not going to be stressed out over it because I've prepared myself mentally ahead of time that I'm right on about half my trades. So being aware of this I think is important and can help reduce much of the stress that we all feel when things don't go our way.

Another way to avoid being on that emotional roller coaster, is to not risk more than you normally do. Trading is a marathon not a sprint. If you plan on trading for many years, it's important to stay in the game by adhering to sound money management strategies. If you are trading too large and risking way too much money, not only do you run the risk of blowing out your account, but the stress you will feel when things don't go your way will be enough to get you sick. This is no way to trade or live in my opinion.

So the two best ways to get off the emotional roller coaster is to not risk a ridiculously large amount of money and to prepare yourself mentally ahead of time to think in probabilities and to realize that there is about a 50% chance of being right on a particular trade.

If any of you have some other ideas as to how we can reduce some of the stress and emotions of trading, please feel free to leave comments. This blog is about helping each other so let's make use of it.