How to control an emotional response to trading…

All traders are different, both in their approach to the markets plus in the emotional range they experience. Some will deal with a winning streak calmly and carry on working hard at following their plan whereas other will become overly excited and then prone to overconfidence. That overconfidence can result in them deviating from their plan and taking trades they would not previously even considered.

Having a winning streak is certainly something to enjoy but we should not allow it to change our emotional state. If we do, we succumb to greed and we all know what a danger that can be.

At the other end of the range are feelings of under confidence and even a form of short term depression when we’ve had a few losers. Inadequacy is another emotion many will feel as they search for reasons why they ‘will never make it as a trader’. During phases like this, it’s very easy to get trapped in a negative cycle of thinking and it’s probably this that results in so many traders quitting in their first year.

Do these emotional ranges disappear with experience? Yes. Do they disappear entirely? No. You just get very good at controlling your emotions and not allowing them to affect your decision making. For example, last week was my first losing week in a good couple of months or more. Is it frustrating to have been on the wrong side of trades? Yes absolutely but this is how I manage myself when experiencing a loss.

Firstly, always put that loss into perspective. It’s simply a drawdown that should actually be expected as no single strategy or methodology can be profitable all of the time. Statistically, if we had a win rate of 60%, we should expect a run of 10 consecutive losses at some stage, that’s simply mathematics. So when I have a losing week like last week, I can put it into context. By doing this, I won’t feel the same extreme of emotional response that a less experienced trader is going to feel. Was I mildly frustrated? Last week yes because some of my decisions during the election period could have been better but I don’t allow it to grow into anything more than that.

Secondly, learn to let go of the past. We can’t influence what has happened, but we can influence what will happen. I use the expression of ‘dusting myself off’ after having some losses so I’m preparing for the fresh challenges that lie ahead. Last week’s loss was probably 1 week in many more weeks of losses that will occur over the next 10 years or more so why worry about it? Focus on learning from any of the mistakes made and go into the following week as if it’s a brand new start. Do not carry the emotional baggage of previous losses with you.

By approaching the markets in this way, I can disregard any negative emotions and focus on what’s important, executing according to my trading plans. That way, I’m quickly back in to the following week without worrying about what’s just happened…..

Moving over to the markets, the Euro is on the charge south with both the technicals and fundamentals aligned. Looking at the monthly chart, it has reached the trendline that started back from 2000/2001.. A bounce is possible in this zone but considering this is the fourth test of the trendline, I would look for any bounce to eventually fail and the Euro look to test those lows from 2015….


Charlie Burton


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