Friday, May 28, 2021

Three Steps To Avoid Trading On Tilt

I hear many traders early in their development wrestling with issues of emotional, reactive trading.  Here are three practical steps that can help traders avoid going on "tilt":

1)  Plan Your Losses - Big expectations lead to big frustrations.  Every trade should be accompanied by a very specific idea of what would tell you you're wrong and how much you're willing to lose on the trade.  It's when losses surprise us and become too large that they're likely to create disruptions in our mindset.  Your goal should be to lose well, in the right way.  Focusing only on how much you want/need to make sets up surprise and frustration.

2)  Take Breaks - After large gains and large losses, it's easy for P/L to get in our heads.  Always take a break after a large trade, clear your head, and assess the opportunity set with fresh eyes.  It is just as important to reset after big wins as big losses.  Both can lead to taking trades for the wrong reasons.  Quick meditation exercises to increase calm and focus can be *very* helpful.

3)  Keep Trading Size Moderate And Consistent - Too much size creates unusual P/L volatility and that leads to emotional volatility.  Your goal is to be consistently profitable and then grow your size while you retain your consistency.  If you *need* to be profitable, that creates undue performance pressure and emotional distraction.  Drama = distraction.  You want no drama in your trading.

The greatest edge of all in trading is self-awareness.  Frustration happens to us all.  The goal is not to trade without emotion, but to be so aware of our emotions that we know when to step back from the screens.


Further Resources:

Three Minute Trading Coach:  Taking Breaks

Three Minute Trading Coach:  Taking Your Emotional Temperature

Three Minute Trading Coach:  Shifting Your Trading Psychology