Keep Calm & Trade On

Maintaining the proper mindset or, in other words having the determination to manage the psychological effects of day trading is pertinent to becoming a consistent, profitable trader. What does it really mean to have the “right” mindset in this profession? Many professional, successful traders will attest to the fact the most important aspect of your mental makeup is discipline. More specifically, risk management. One single poorly managed trade can bring destruction to a trader’s account, so it is crucial that as a trader you have the ability to cut losers quickly. A trader must be able to move on to the next trade with a calm, clear mind regardless of the result of the prior.

We all want to win more than we lose – Human Nature. However, it is this natural tendency that can result in a trader holding on to a losing position with the belief that it can be turned into a winner. The mix of emotions that arise in this situation can be overwhelming, BUT it is critical to not let those emotions affect your decisions in managing an open position.

All of the above may sound rather simple in theory, but in the heat of the moment it can be quite difficult to maintain composure. It can be very helpful to have a process in place that you can refer to and guide you through the intense moments while in the hot seat.

Here are a few points to assist in exercising discipline:

  • Use a stop order – This is the first step in successfully managing risk. Calculate your stop BEFORE entering the trade and do not change it. Your first instinct is statistically the most accurate.
  • Do not add to a loser – A critical point to understand is to recognize a trade is not working, exit and move on to the next. Let me quantify this statement. I more often than not enter my trades with a calculated stop in mind and build upon a position. This simply means that yes, I tend to give a trade a bit more room to get started but I am looking for a much larger move. Now, if a trade does go against me immediately after entry I will step aside wait for another entry opportunity.
  • Managing Winners – Yes, you must also manage you winning trades. Too often we are inundated with the importance of managing losers and nothing is said about the winning trades. It is just as important to understand how to not exit a winning trade prematurely. Taking profits too quickly often plagues the most talented of traders day in day out. Experience will eventually teach you how to have the confidence to hold a position for maximum gain.

The proper management of the psychological effects of day trading is the difference between success and failure in this profession. It is extremely difficult to master and is a constant evolution as you navigate the markets but can be accomplished with the utmost discipline. Remember, in this game you WILL ultimately succeed if you keep calm and carry on!


Keep Calm and Trade On was written by Mike