Getting into a relaxed trading state is critical for success. I’ve only been trading since December of 2017 and along the way I have learned that the most difficult part of trading profitably is learning how to shut down. Yup, you read that right, I learned how to shut down. I learned how to calm my emotions to an almost relaxed state and just keep my head in the business where it should be.
Have you ever been in a situation where two people are in a heated discussion with emotions and egos flying?
And here you are the quiet 3rd person who listens to both sides and you come up with the sharp observation that ends the argument peacefully? You may not realize it but you used your rational observation to predict the outcome of the argument. And thus the appropriate solution.
You read the room and you kept your cool. You knew that an argument was going to erupt even before you knew what the cause of the argument was. Or what the argument was even about.
You watched it escalate, you watched it reach a dead end and you explained the rational solution. As a result, you resolved the conflict because you kept your own emotions at bay until you predicted just the right moment to interject.
Algos aside, when you look at a live chart, you’re literally looking at an emotional and egotistical argument taking place. Just buyers and sellers fighting over what the share price should be.
Watch the chart long enough and you’ll begin to recognize patterns and tightening tensions.
These usually precede an explosive battle of wits and egos. Your brain is practically hardwired to seek patterns and subtle changes to those movements in order to predict a probable outcome.
The only problem is, that your heart tends to step in and your emotions begin to distract your mind. Causing you to ignore what your rational mind is trying to tell you. Out the door goes relaxed trading.
Using Charts for Relaxed Trading
Like the argument, the chart can be easy to read and easy to predict once you’ve spent enough time watching it.
Practicing technical analysis is very similar to developing muscle memory.
You could literally react to the chart on autopilot. So how can something so simple be so hard to do when emotions get in the way?
To answer that, lets refer back to the argument scenario. Being the rational 3rd person is hard. But imagine if you, the 3rd person were to be roped into the argument having lost your ability to contain yourself and losing your sense of rationale.
Then you’d be just one of three people who argue and eventually walk away in a state of dissatisfaction. And lacking any sense of accomplishment, but you really thought that you were right!
I’ve spent quite a bit of time watching others battle their emotions while trading. And they usually end up trading very poorly when they let their emotions get the best of them.
I’ll watch as they develop a good trading plan in the way they were expertly shown by very experienced and accomplished traders.
They plot the expected move, figure out their price targets and stops. Does relaxed trading happen then? Nope. They enter the trade and suddenly forget everything they worked so hard to plan.
Instead, they either take a loss or take profit too soon and watch as their targets hit almost perfectly.
What happened? In the words of an epical green creature from the lore of absolute cinema greatness, “Fear leads to anger, anger leads to hate. Hate leads to suffering”. That doesn’t sound like relaxed trading to me.
Know When to Enter a Trade
You enter the trade and the next one minute candle turns red. What happens? You see a loss on your unrealized P&L.
You realize how much money you’ve risked and your blood runs cold. The emotions set in. You’re afraid that you may have made a mistake.
You get a little angry because your trade isn’t going your way. Then you start to hate yourself for taking such a stupid risk and you smash the sell button even though the share price is still above your stop.
Now you are suffering and you begin to lose confidence in your technical analysis. You continue to watch as the share price rebounds and hits your target. Sound familiar? You are not alone and yes I have been there too.
Reluctantly you enter another trade. Only this time the share price hits your target quickly. At first you are elated but you wonder if this run can keep going so you decide to stay in your position.
Next thing you know the share price pulls back and you feel like you have already lost a little but it has got to bounce back up right?
But a heated emotional and egotistical debate took place in your mind that completely took over the operation. Instead of relaxed trading.
Stick to the Plan
Just like being the 3rd person in the room with a level head while the other two argue, you must learn to be the 3rd voice inside your own head.
The only problem is that the other two are hard of hearing. So you must do whatever is necessary to tune them out. You have to tune out fear by losing your emotional attachment to money.
Just trade the plan. You have to tune out ego by sticking to your plan. If you want relaxed trading, you have to tune out hate and suffering.
Instead remember that you have a stop in place as part of your plan. You literally shut down emotion by simply trading your plan.
Trading with the chart instead of your heart may seem easier said than done. But you have to realize that your brain is already programmed to do just that. For most people this calm collective and rational state of mind is realized when you’re at your best.
When you are doing something that you have a lot of experience in it’s easy to tune out and just finish the task on autopilot. Just like driving to work every day or walking the kids to school, you know exactly what to expect and you just follow through. Sure, you’re still alert and aware of your surroundings but for the most part you are on autopilot.
When something surprises you your emotions kick in and your fight or flight system comes online that enables you to react quickly and without thinking. T
his is the point where you must evaluate those emotions and decide if this situation is a real threat; or just a little obstacle. Either way you have a plan with contingencies in place.
Is Trading a Stressful Job?
Trading is exciting and boundless. But the boundlessness is also a 2 way street. Letting emotions take control of your trading is a sure way to end up suffering and you lose out on relaxed trading.
Instead of letting your emotions take control while you’re trading, learn to keep them subdued.
And realize that you can let them all out later when the business is done. You can even share those emotions with other traders if you must but keeping emotions out of your trading is key.
In a way, trading should almost feel boring and mundane while you are in a position. It is just business after all. Try not to think about money and you should especially never have a sense of needing to make money.
Just trade the chart and the money will come. Don’t focus on your P&L while you’re in a position. Instead, just focus on trading your plan. Any emotional attachment to your trade will almost certainly lead to fear.
Fear leads to irrational actions made in anger. Anger leads to hating your decisions and irrational actions. Hatred leads to suffering a loss in your portfolio.
The Bottom Line
I know it sounds a bit cheesy but you gotta admit that you can’t deny it. The take away is that you must be able to observe yourself in the 3rd person once in a while.
It really helps to recognize the argument inside your head when you find yourself getting emotional while you are trading. Once you sort out the argument your trades should begin to run more smoothly.