Emotions: A Trader's Worst Enemy; Get Rid of Fear and Greed - You'll be Glad

You hear it over and over and over in books, forums, and
chatrooms. Fear and greed, fear and greed, fear and greed.
Emotions are a trader's worst enemy. What are we supposed
to do about it? We are human after all. Human beings have
emotions. We can't just throw a switch and suddenly behave
like "Data" on Star Trek the Next Generation.

So what's the answer for the aspiring trader?

It all boils down to 2 main components:

1. Having a plan

2. Having an appropriate trading style

You hear the first point often. Obnoxious little phrases
like "Plan your trade, Trade your plan" are thrown around
like it was really just that simple. But without the second
part, the first part is useless. What good is a plan if you
don't know what type of plan is appropriate?

For example, you could plan your commute to work expecting
to make the 30 mile trip in 20 minutes, but if you're on
foot that plan isn't going to work very well is it? The
plan was simply not appropriate for you in that situation.

There are an unlimited number of possible trading methods
and styles, from chart reading to fundamental analysis,
cycles to Fibonacci retracements, intra-day, Dogs of the
DOW, Options, Futures, FOREX, Pork Bellies, Arbitrage – it
can make you feel like your head will explode! But what you
trade does not matter nearly as much as how, or perhaps why
you trade.

Why do you trade?

Are you the sort who likes to play video games, loves fast
action, and has no problem being glued to a screen all day?
Then maybe intra-day trading 1 and 5 minute charts of high
volatility equity options is for you.

Rather check your trades maybe every few days, or maybe
once a week? Then perhaps swing trading currency pairs is
more your style.

Prefer sleeping easy at all times, never worrying in the
least about your trades because you knew up front that they
would profit? Then my friend, arbitrage trading is calling
your name.

Every style has its advantages and disadvantages, its risks
and rewards, but most important is that the style must
match the trader. If you jump into trading believing that
just because someone else can do it this way, then so can
you – you may be in for a very painful surprise.

Never trade someone else's plan. Never trade someone else's
style. You absolutely must know your own temperament well
enough to determine what you will trade, and exactly how
you will trade it. Your money management rules, your
tolerance for losses, i.e. costs, , your willingness to
change the trade if your market opinion is proven wrong –
these are the true secrets to trading that separate the
novice from the veteran. With these in place, emotions can
be reduced if not eliminated.

After all, which would put you most at ease? Driving
through an unfamiliar city alone with no guidance, driving
with a map, or driving with a full color
street-level-detail GPS navigation system?

I'll take the GPS, thank you.

So before you place your first, or next, trade, consider
the following:

a. Do you understand what you are trading and why?

b. Do you know what you will do given any of the possible
outcomes?

c. Are you ready and willing to admit you were wrong about
the trade, and if so what will you do about it and when?

d. Are you comfortable with the thought of losing the money
you are putting into the trade, and will your trading
account survive to trade another day if you do?

These are all part of what you need to have in your plan. I
urge you to have considered them thoroughly before risking
the slightest amount of money in a real trade.

Emotions – "You can't trade with 'em, and you must trade
without 'em."