Trading outcomes are often perceived to be determined based on the technical and fundamental analysis of a market—and having experience and skills in these areas can go a long way in helping traders build consistency. But anyone who has spent time trading in the futures markets knows that the psychological aspects of trading are just as important.
In a recent discussion on NinjaTrader Live, high-performance sports and trading coach Créde Sheehy-Kelly shared her valuable insights into trading psychology, emphasizing the importance of mental resilience and emotional control in achieving long-term success.
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Topics discussed in this free livestream:
- How emotions undermine rational decision-making
- How emotions amplify cognitive biases
- How emotions lead to inconsistent performance
Many people experience psychological challenges when trading. Créde dives into the nature of these behaviors along with causes, manifestations, and strategies for overcoming them. She also explores underlying trading psychology, identifies when impulses can arise, and provides actionable solutions to help traders regain control and make more rational decisions.
Influence of Emotions on Trading
Emotions can significantly influence your decision-making when trading. Whether you’re a seasoned trader or just starting, the market has a unique way of bringing underlying psychological issues to the surface. As Créde explained, "When the pressure increases and you're trading live, all these psychological issues will come to the fore. The market is such a tough taskmaster that there's nowhere to hide from it."
Some of the key emotions traders grapple with are fear of loss, fear of missing out, and fear of not being good enough. These fears often stem from deeper issues like self-worth and confidence. Créde emphasized the importance of recognizing these emotions and releasing oneself from feelings of inadequacy or guilt.
Dangers of Outcomes-Based Trading
Another critical point to understand is the pitfall of outcomes-based trading. Many traders set unrealistic expectations for individual trades, believing that a trade has the potential to fulfill their dreams and aspirations. This mindset can lead to significant pressure, which in turn can worsen psychological issues and lead to poor decision-making. While it’s natural to have goals, traders should focus on the execution of their trading plans rather than obsessing over the outcomes.
Trading on Tilt and Revenge Trading
One of the most detrimental psychological traps traders fall into is "trading on tilt," a state where a one trades impulsively, often to recover losses. This often happens after a series of losses, where emotions like rage, frustration, and anger take over, leading to irrational decisions.
Traders on a losing streak often feel they are being wronged by the market and continue to make poorly thought-through trades to recover their losses. This cycle is not only emotionally draining but can also be financially destructive.
Strategies for Maintaining Emotional Control
To combat these trading psychology challenges, one technique is to incorporate rules around trading that go beyond entry and exit points. For instance, setting limits on the number of trades per day or restricting trading to specific times of the day can help you maintain discipline and reduce your likelihood of trading on tilt.
See how NinjaTrader can help you stick to these rules with our account-level risk management.
It’s also important to detach from the outcomes of individual trades and focus more on the process. For those struggling with emotional control, techniques like journaling—writing down your emotions and actions before, during, and after a trade—can be highly effective. This practice not only disrupts automatic, emotion-driven decision-making but also provides valuable data to help you identify patterns in your trading behavior.
Mastering Your Emotions for Long-Term Success
The psychological aspect of trading is often overlooked, but mastering your emotions is crucial to long-term success. By focusing on process over outcome, setting clear risk boundaries, and using techniques like journaling, traders can build the mental resilience they need to navigate the challenges of the futures market.
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