On a recent trip to Malaysia, I had the chance to meet several clients and was asked one question over and over- “How do you separate your emotions from trading?”
One of the first rules anyone learns in trading is to stay disciplined and stick to your strategy. Regardless of how long you’ve been trading, this is age old saying. There may be many ways of saying it- “Don’t trade with emotion”, “Stick to your strategy”, “Don’t let your losses run or cut your profits too early”, “Know where to get out before you get in a trade”, but they all mean the same thing- Be disciplined with your trades.
We’ve talked about the most common Mistakes that Traders Make (https://www.junomarkets.com/en/the-3-most-common-mistakes-new-and-experienced-traders-make/) and it all boils down to one important thing- discipline. Now you might be asking, how do you stay disciplined in trading? How do you avoid second guessing yourself or fighting that voice inside that keeps trying to convince you that the trade will turn back around?
It all starts with one word- Habit. Humans are creatures of habit. We have formed our habits and ways of being throughout our lives by doing the same thing over and over. What I came to realize was that there was a pattern in the traits of people who kept asking about becoming a disciplined trader…they weren’t disciplined themselves. Not just in trading, but in all areas of their lives.
If you want to become disciplined in trading and remove your emotions from your trading decisions, you need to start practicing and forming habits. This starts from your everyday life. Are you a person that sticks to your word and fully follows through when making a plan? Do you execute ideas or simply talk about them?
As much as physical strength (https://www.junomarkets.com/en/can-exercise-help-you-become-a-better-trader/) is important to trading, mental strength is even more important. The world’s most successful traders and investors all have disciplined. Aside from being intelligent, savvy traders put in the work. They spend countless hours doing research, creating strategies and following through on them. Ray Dalio, founder of Bridgewater Capital, and one of the most influential investors of all time, has a list of principals he lives and works by. He suggests that all successful people must have a set of life and work principals to stick to. I would highly suggest picking up a copy of his book, ‘Principles’.
To change your habits, start off with something small. Do you have goals that you’ve always wanted to achieve? Reading a book once a month, waking up at 6am daily to exercise, eating a healthy and balance diet. All of these things take discipline, persistence and consistency to achieve. Once you’re able to form a disciplined lifestyle, you’ll see how much easier it is to “remove the emotion from trading”.