Last updated on May 12th, 2020
Trading with emotions can be devastating and if you don’t get your emotions under control, it can take a lot of time to recover from the consequences.
When the decisions about the market are made from a place of emotion as opposed to strict adherence to a proven trading strategy and trading plan, losing streaks and blow up trading accounts can be the result.
While a losing streak is easier to manage when using proper risk management protocols, refunding a trading account is something that many traders can not do.
If you are a day trader, emotional trading or “trading tilt” you are more at risk than traders who swing or position trade. Day traders who have the ability to to enter the market several times in a trading session, have little time to combat the emotional trading process before another trade setup comes.
How Your Mind Works When Trading Emotionally
To get a better idea of tilt, think of a trading scenario where the internal conversation goes something like: –
“Oh man – not again! I don’t believe it! Well I’ll show you!” and then you take a poor or rash trade out of anger or frustration. Trading becomes aggressive and all respect for risk goes out the window.
If you don’t recognize this, think about an argument you’ve had in the past with someone you care about.
I’m confident that most people will have at least once said something in anger, which they truly did not mean and would take back if they could. But in the heat of the moment, they were unable to think logically and were driven by strong emotions.
When our minds become a runaway emotional train, it can be difficult to refocus and get back on track. While you may understand trading psychology and know the pitfalls of certain ways of being, getting off the train before your trading career takes a hit can be a tough thing to do.
Negative Effects Of Trading On Tilt Can Take Time
Going on tilt may or may not have an immediate impact on a trader. In fact, it’s probably worse if the trader makes money in the beginning, irrespective of this type of trading. If they do, bad habits start to creep in and even worse, strong emotional responses to certain situations become second nature.
Financially, the fallout from tilt can have a huge impact on the expectancy of a strategy. It only takes a few blowout trades to really skew performance. When this happens, it also leads to traders starting to snatch at their winners and banking the money too. So the effect is doubled by taking smaller winners and larger losers. Not a great combination for making a living out of trading.
Far too often, successful traders who begin to trade emotionally for whatever reason, find themselves lacking the success they once had. Feeling this way can build frustration and start a feedback loop that may require much effort to break.
At Netpicks, we encourage all traders in our Inner Circle or those who have purchased one of our trading systems to have a trading plan. Think of the trading plan as your lifeline when emotions start to creep into your trading. Having a plan that you put together through testing and optimizing can remind you that the correct path is the one you’ve already plotted out and it does not include letting your emotions win.
Trading On Tilt – Triggered
Not every trader will suffer from emotional trading regardless of the scenarios you are about to read. Much of the threat of trading on tilt being triggered depends on the traders susceptibility.
There are a plethora of reasons why a trader might be more susceptible.
Trading with low amounts of capital can mean that each trade has a big impact on your account and this can lead to being too dependent on the outcome of a single trade. Taking a few bad trades then becomes not only infuriating, but becomes a threat.
If you’re experiencing a drawn out losing streak or a period of low performance, your emotional capital could be particularly low already and anything could end up tipping you over the edge.
Alcohol or other intoxicating substances, inadequate nutrition, poor quality of sleep or a stressful situation at home could also be problematic – the condition of the trader plays a huge role in susceptibility to trading tilt.
The fear of missing out on a big move that you “know” is going to work (FOMO) is a huge issue with the retail trading crowd. Think of how you feel when the market runs, you jump in a trade only to have the market reverse and stop you out.
I’ve been down that road and can honestly say I felt angry. Angry that I did something out of my trading plan but also angry that I lost. This can start the ball rolling towards trading failure if you do not find ways to understand what triggers you and how you can avoid getting to that state of mind in the first place.
Tilt isn’t always created by the trader themselves and the type of market movement is also likely to have a big impact.
Seeing a trade stopped out quickly when the market hasn’t really been moving a great deal, can evoke feelings of vulnerability and generate a fight or flight response. This is probably one of the biggest dangers for a trader – losing the ability to act rationally and instead acting aggressively without respect for risk, just as market volatility spikes.
Increased market volatility and erratic news driven behavior often leads to emotional trading and losing trades that can be difficult to recover from.
Trading Tilt Does Not Have To End Your Career
The best advice I can give anyone who ever has a problem with tilt (which is most people) is that having a good awareness of how you’re feeling and acting can be the key to stopping the consequences.
Once you’ve been fully triggered, it can be pretty difficult to get out of it, so recognizing the signs and having mechanisms to disrupt the impact can help enormously. These could include
- taking a break from your screens
- breathing exercises
- short intense exercise
- having a hard daily loss limit
Emotional control is paramount to your trading success because it is easier to deal with self-sabotaging behavior before it happens.
This involves recognizing whether you’re currently susceptible to tilt, the types of trading scenario that could be a trigger, having an awareness when those triggers actually happen and the emotional signs that it’s coming. Calming down before trading tilt hits, is a lot easier when you’re ready for it.
How To Stop Trading From Emotions
Let’s put it out there – it is not easy to short-circuit our emotions and trade like a robot. We all have expectations and when those are not met, sometimes we will get emotional.
Getting emotional is not the problem, acting on emotions is. We need something we can do to quickly get us back on track before our emotions end our trading career.
Prepare for the trading day
Knowing what news events are schedule during your trading session will help you avoid trading when the market gets hit with extra volatility. If you have done a personal inventory of yourself, you may know that when the markets move too fast you tend to get excited and have the urge to take a larger than normal trading position.
Stepping away from the screen is a simple solution to help you avoid the “volatility trigger”.
You can also prepare yourself through meditation, exercising, or reading your trading plan for each setup you may take during the session.
Use A Checklist To Prepare
Knowing what and when to do something helps ensure that you are leaving nothing to chance – except the moves of the market. When your trading strategy shows a setup, what are the exact steps you will take? Write them down and each time the setup appears, go through the checklist to keep your mind on the task at hand.
Focus On The Process
In sports, the great coaches have players trust the process with the promise that results will take care of themselves.
Think of a baseball pitcher throwing a 90 MPH fastball and hitting the corner of the plate. Once the ball leaves the hand, the ball is on a path either to go in the intended direction of stray far from the path.
The pitcher must trust that the hours of practice, learning how to load back, how to land the front foot, where to release the ball, how to finish the pitch, have been ingrained. Doing all those things correctly, following the process, should lead to the result – a perfectly placed pitch.
Trading is not much different.
You’ve done the extensive testing of your trading strategy and have an edge. Over the course of many trades, you have a positive expectancy system and your job, your only job, is to execute the steps involved in the trading plan – trusting the process you’ve developed – and finding the success you seek as a trader.