Trading Emotions: Part 2 – 5 Simple Control Mechanisms

controlyouremotionsThis is Part 2 of a 2 part series to “Control Your Emotions”. Please click here to see Part 1 of the series.

As mentioned in part 1, traders need to take control of their own Emotions. For some of you, this seems like an impossible task, especially if you’re a very emotional person.

Hence, do not attempt to master it over night. On top of that, everyone is unique and not all methods will work for you.

With that, I’m proposing that you should start searching for methods that may work for you. And keep trying until you find it.

Here are 5 suggestions that you may want to try. Some of them are conventional and some are less conventional. If you need to, discuss this with your closed ones as they might be able to share some ideas too.

1. Walk Away from the Charts

Set an alarm on your phone or your watch and WALK AWAY. If you’re a Price Action trader, decisions should only be made based on the close of the bar and bars only close at specific times of the day.

Alternatively, set a specific stop loss target or take profit target and WALK AWAY.

Many people spend so much time staring at the charts, but that doesn’t add any value to your analysis. In fact, that’s the easiest way to get emotional which leads to traders interfering with trades.

2. Create a Trade Journal

When traders are emotional, they tend to make less rational decisions. However, it is difficult to monitor that you’re making rational decisions until you become more relax. And sometimes, this might take awhile.

Hence, it important to have a Trade Journal where you can review your performance (including emotional performance) when you’re more relaxed or at the end of a trading period. A Trade Journal will allow you to monitor the results of the system and check that you are making rational decisions. If you want to, you can also record in the journal your mental state or emotional status each time you are opening or closing a trade.

Again, you’re able to monitor yourself at the end of each trading period to check how you’re progressing.

3. Migrate to a Bigger Timeframe

 The more frequent you get emotional, the easier it is to get emotional.

Hence, if you’re trading the 15min chart, move to a 60 min chart. If you’re trading a 60 min chart, move to a 4 hour chart. And so on.

Larger timeframes have (1) less volatility, (2) requires less effort and (3), if you have a profitable system, it will generate a good return compared to smaller timeframe.

4. Demo Trading

Demo Trading is a very powerful way to eliminate emotions and a perfect tool to find your trading edge. You are allowed to make as many mistakes from trading as you can in a Demo Account without losing a penny in your Financial Account.

However, many novice traders underestimate the usefulness of this option. They only focus on the monetary part of trading but they don’t realise that money will come once they find their trading edge.

If you have been trading for awhile and struggling to control your emotions, don’t feel silly going back into a demo account. There’s absolutely nothing wrong about that. In fact, you should feel proud if you’re able to put away your ego and take the right actions.

5. Heart Rate Meter

Ok, this is probably the most unconventional way to monitor your emotions. And some of you are probably laughing while reading this.

Try using a Heart Rate Meter.

Yes, I know of people who do this and they use the meter very effectively. Many people get a higher heart rate when they get emotional. When that happens, the gadget will alert you. It’s that simple and I personally think this is an awesome invention.

Just as a reminder, this is one of the most (if not, more) mechanical method of controlling your emotions. By using a Heart Rate Meter, you are adding a robotic instrument onto your trading routine because the machine will never be bias.

I’m not saying that it’ll work for everyone. But if it works for you, why not?

Conclusion

The suggestions above are only options that you may use. Which ever method you intend to you, please make a concious effort to control your emotions. The control mechanisms are important because the first step to controlling emotions is AWARENESS, and being able to monitor your emotions is a great start.

As mentioned in Part 1, let’s aim to be emotionally Neutral.

 

Thank you for reading and I hope you enjoyed the articles.

 

4 Comments

  • Gully

    Reply Reply November 30, 2012

    Spot on… I’ve closed some trades this last fortnight at a loss when I didn’t have to.. do you recommend a particular heart rate reader?! Gully

    • Alwin Ng

      Alwin

      Reply Reply December 1, 2012

      Hey Gully, Unfortunately, I can’t recommend one as I’ve not used it before. However, I know of people who have used a heart rate meter effectively.

  • Alex LW

    Reply Reply December 13, 2012

    Great article Alwin. Very interesting stuff. I love the heart rate monitor idea. I’ll certainly think on and action this stuff.

    • Alwin Ng

      Alwin

      Reply Reply December 13, 2012

      Hey Alex, Thanks. It’s definitely a smart and simple gadget. Do let us know how it goes after you get it.

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