Trading Stock - Mastering Emotions To Become A Professional Trader

Plan to trade and trade the plan. Without a plan and a target firmly set where you will exit a trade in the event of failure, you are doomed to letting emotions influence your decision making. Before I get into talking about the technical side of trading stock, let's go back to basics and look at human emotion and what motivates us as people. The primary driving factors of any individual when it comes to money are fear and greed.

Fear that you will lose. When you are in a losing position, unless you have already decided where you will exit the trade you are in danger of going into denial and holding a losing position. This can be absolutely disasterous. To be quite frank with you, the worst thing that can happen in that situation when trading stock, is that the position goes out of a loss and back into profit. Why? Why you ask... when I have ended up in profit, surely that's a good thing right? Wrong! The market has rewarded you for a bad decision and as sure as eggs are eggs, next time you are in that position you will try your luck again. It could harm you financially or even worse, if you're a really bad planner, it could wipe you out. Without money a trader has no inventory left at his/her disposal.

Likewise greed - not knowing when to close out a winning position when trading stock. What can often happen there is that you end up watching a stock plummet back down to where you bought it or even below. Instead of taking a profit a long time ago you end up waiting and watching for it, hoping it will go back to the price it was at before, or even higher before you close out the position.

From the examples above you can already see why trading stock can be an emotional minefield. Once you know yourself and how emotions and psychology plays its part in trading stock, you can eliminate a lot of what could potentially wipe you out when pursuing a career as a trader. We will revisit emotions and psychology again.

In the next post I will talk more about the technical aspects of trading stock.