Most of us can remember our school days. Some of us likely took our education very seriously, while others found it to be a less engaging portion of our life. Whether you enjoyed school or found it disinteresting, you probably learned to ascertain the value of homework.

Usually, homework is a prominent portion of the total grading scale for class. Beyond that, homework not only contributes to a part of the final grade, but it also assists in preparing the student for the more significant grading variables, including quizzes, tests, and exams. 

This article is about doing your trading homework. If you were given a grade on how well you completed the assignments below, what would it be? The likelihood is that your level of attention to this homework is reflected in your profit and loss. While trading homework does not deserve the sole credit for a trader’s success, I’ve found that traders who fail to complete their homework will never ultimately be successful. 

What do I mean by homework? I’ll express some specific factors momentarily, but in simple terms, I mean the preparation for your trading experience that primarily involves off-hours work. In recollecting my school days, it was always enjoyable to have a weekend without homework; however, in our trading careers, there is always something to prepare for. 

Take the Time To Do the Work

This content is prompted by something I have observed in more than a decade of working in the “retail” trading industry, observing the processes of traders who attempt to learn the ropes and eventually become professional or vocational in this field. 

It never ceases to amaze me that many who attempt to emerge as successful traders seem to expect to do little except turn on their screens, press the correct buttons while making the proper assessments, and then turn off their monitors and move on. 

Sure, this could be a formula that works for someone, but only after extensive homework and adopting a program that enables a computer system to do much of the complicated work for them. But even in such cases, that individual must still invest in a substantial amount of preparation in order to maintain such a program. 

3 Ways To prep for the trade

The next portion of this article considers the types of homework that are necessary for successful trading.

Headline Risk

I once knew a developing trader who originally affirmed that all he needed was charts and did not require an understanding of how news concepts play into the markets. While I think that one might generate some modest to moderate gains with such an approach, not everyone can ignore the news and be productive. Moreover, when this trader finally decided to consider news factors more seriously, that change became an essential part of his trading, moving from a hobby into income-producing success.

Let’s consider two factors—first, scheduled economic reports, and second, geo-political events. 

Scheduled Economic Reports

Initially, scheduled economic reports are predictable in that they are placed on a calendar some time in advance, often with a relevant forecast. While you may not trade based on these fundamentals, still being aware of how unique reports will affect which markets and in what ways is valuable information. This may do nothing more than alert you to potential volatility, which may either be something you want to avoid or benefit from. 

Additionally, looking these things up during the trading day makes for an ill-prepared approach. The best traders already know at the start of the day which factors are relevant before they ever start monitoring their charts. Sometimes this involves early morning work, late evening work for the following day, or a weekend plan for the week ahead. 

Geopolitical Risk

The second type of information to consider is geopolitical risk. I knew another trader who failed to fully assess the effects of the markets last year in 2022. Several factors came into play, including the Russian invasion of Ukraine, ongoing inflation matters with the Federal Reserve-induced monetary policy, and varying recession-risk headlines. 

This particular trader informed me of how hard it was to break even over the year. As we explored his experiences together, it was clear that none of his trading considered the geopolitical and economic macro-variables. For him, this made the difference in, at times, trading with momentum and, at other times, resisting it.

Charts

Again, like news or headline-driven events, this one seems like it should be clear. However, it’s amazing how frequently I see otherwise. I’ve observed some traders who expect to turn on their screens and begin trading, all the while making market assessments that require attention and energy that could have been exerted during “homework time.” Your trading hours are not the time to calculate your mathematical formulas or to start drawing trendlines and support and resistance areas. This should have been done well before your market opened. 

Now granted, there are times intraday when trendlines and channels start to form, and then it is helpful to identify market characteristics that have altered the charts across your trading day. However, as an exaggerated example, you need not look up the previous week’s high while you are currently fishing for trading opportunities; that is the type that should have been identified well in advance. 

Remember, the idea is for your homework to make you prepared. When your homework is complete before you trade, you have more time to consider the factors that matter to you and adopt a better plan. On the other hand, when you have to think about matters that could have been addressed during “homework time” while you trade, you may become distracted or have to make decisions much more quickly than you would like. 

Miscellaneous Tasks

Certain other homework areas are also vital, and I’ll address these matters in a single section. One such critical issue is your risk management plan. This is something that should also be considered during your homework time. Sure, adjustments may need to be made in the course of the day, but one should never enter a trade and then begin to consider volatility, risk, and target. When this type of homework is skipped, it’s like taking a test you haven’t prepared for. Sometimes your brilliance will enable you to pass the exam, but eventually, it will lead to disappointing results. 

Moreover, you might be surprised how many times I’ve seen traders begin to experiment during the course of the trading day. Sure, there are times to try something new, but not on a whim. For example, I once spoke to a trader who told me he had decided to try a new market that day. I asked about the thought process and was told that he had just decided to try something different without any serious prior consideration. 

I’ve seen other traders who, during the day, felt like their indicators weren’t adequately working, so without any homework, they decided to add new tools to their charts, deciding without any preplanning that these might work. 

Now, I realize that many of you wouldn’t do such a thing, but any of us, especially when we are vulnerable, might be willing to take a chance without completing a thorough homework regimen. I’ve frequently said that while trading is distinct from gambling, it still brings out the impulses of greed and fear in a way that is comparable to the casino. Trading tends to activate our impulsive tendencies. 

The Pros Outweigh The Cons

The benefits of homework should be apparent but cannot be overstated. Of course, some may be concerned with “analysis paralysis,” when excessive thought and preparation might lead to being too idle and afraid to engage with the markets. However, this is an entirely separate subject that might create a good follow-up article. 

The alternative to homework routines is to rely only on your skill, impulses, quick thinking, and ability to read the market quickly (and possibly, blindly) and expect this to serve to navigate a profession that few are able to conquer. Instead, I suggest that preparing and doing your homework is the much-preferred path toward success.

A ton more can be said about doing your trading homework. Perhaps, you’ll have some ideas you can share with the community by posting your comments below. Until next time, trade well!

The post Grading Your Trading Homework appeared first on Topstep.

In the next 3 episodes, Dan and Jack explore the Prep-Trade-Reflect system endorsed by the coaching team at Topstep.

Download and Listen Options

You can listen and download all episodes of the Limit Up! Podcast on Spotify and Apple Podcasts. Use the links below to get the latest episode, “Prep-Trade-Relect: Part 1”

Spotify: Listen to the latest episode!

Apple Podcasts: Listen to the latest episode!

About Limit Up!

Limit Up! is a podcast brought to you by Topstep about trading, trading psychology, trading life, and pretty much whatever else the wonderful world of markets has to offer. It’s hosted by two former professional traders, Jack and Dan, who still dabble in futures, forex, options, political betting—they basically love to follow the action. They’ll teach you how to trade, but more importantly, how to develop the habits that make traders good. Risk Disclosure: https://www.Topstepquantumhub.com/risk-disclosure/

Topstep is the premiere funding opportunity for traders looking to make the most market opportunities without risking their own capital. When traders pass the completely-objective Trading Combine®, Topstep funds them with proprietary money. Guaranteed. Beyond funding, we seek to instill better habits in our traders (hence the Limit Up! Podcast and other educational resources). Topstep has been based in Chicago since 2012.

Jack Pelzer is a co-host of Limit Up! He traded as part of a U.S. Treasury group for 7 years at Chopper Trading and DRW. After leaving the industry, he became a Writing Fellow and Senior Contributing Writer for The Onion. He is now the Head of Content at Topstep.

Dan Hodgman is a co-host of Limit Up! Before coming to Topstep, Dan traded 30 Yr Treasury Options and Yield Spreads. Before that, he served in the United States Marine Corps, where he simultaneously managed his own Futures Account, applying the skills he grew up learning from clerking on the trading floor. Now Dan works with the Traders here at Topstep as a Performance Coach and is a regular on the Daily Market Recap.

The post Prep-Trade-Reflect Part 1: “Prep” appeared first on Topstep.

In this week’s episode of Limit Up! Dan and Jack discuss the components of an effective trading journal. The trades. Hard data. Emotions and feelings. You’ll need them all if you want to get better.

Download and Listen Options

You can listen and download all episodes of the Limit Up! Podcast on Spotify and Apple Podcasts. Use the links below to get the latest episode, “What You Need In Your Trading Journal”

Spotify: Listen to the latest episode!

Apple Podcasts: Listen to the latest episode!

About Limit Up!

Limit Up! is a podcast brought to you by Topstep about trading, trading psychology, trading life, and pretty much whatever else the wonderful world of markets has to offer. It’s hosted by two former professional traders, Jack and Dan, who still dabble in futures, forex, options, political betting—they basically love to follow the action. They’ll teach you how to trade, but more importantly, how to develop the habits that make traders good. Risk Disclosure: https://www.Topstepquantumhub.com/risk-disclosure/

Topstep is the premiere funding opportunity for traders looking to make the most market opportunities without risking their own capital. When traders pass the completely-objective Trading Combine®, Topstep funds them with proprietary money. Guaranteed. Beyond funding, we seek to instill better habits in our traders (hence the Limit Up! Podcast and other educational resources). Topstep has been based in Chicago since 2012.

Jack Pelzer is a co-host of Limit Up! He traded as part of a U.S. Treasury group for 7 years at Chopper Trading and DRW. After leaving the industry, he became a Writing Fellow and Senior Contributing Writer for The Onion. He is now the Head of Content at Topstep.

Dan Hodgman is a co-host of Limit Up! Before coming to Topstep, Dan traded 30 Yr Treasury Options and Yield Spreads. Before that, he served in the United States Marine Corps, where he simultaneously managed his own Futures Account, applying the skills he grew up learning from clerking on the trading floor. Now Dan works with the Traders here at Topstep as a Performance Coach and is a regular on the Daily Market Recap.

The post What You Need In Your Trading Journal appeared first on Topstep.

We examined the metaphors of fishing and hunting as they apply to trading in a previous article. So, fishing or waiting for the right trade to bite our line is a much better approach for many of us than aggressively trying to locate trades. However, the problem, in part, is the battlefield within our minds, whereby we endure a variety of mental games that frequently throw us off track and sometimes even enable us to take an opposite approach to what we’ve intended.

In this follow-up article, I will deliver as promised to discuss some attributes and methods that will enhance your skills of fishing for trades, sitting back, and waiting for the right opportunities to come along. 

4 Ways To Become a More Patient Trader

Create a Launch Sequence

This first illustration is a bit more aggressive than my typical easy-going tone, encouraging you to kick back and be patient for trades. However, I watched a documentary on space shuttle launches and noticed the precise sequence in the days, hours, and minutes preceding take off. The idea is that every crucial element is inventoried and accounted for, so there should be few surprises.

Many traders tend to trade spontaneously, not knowing what positions they could be in. Having a launch sequence keeps you from surprising even yourself. In addition, when you have conscious steps to your approach, you are less likely to be thrown off by the mental games that attempt to harm you. 

Life is full of surprises, but you should anticipate fewer unexpected occurrences when your money is at stake. Therefore, if you’ve been thrown off course in the past and tempted to trade over aggressively, you might consider a checklist that you visit when processing every trade. It could be a variety of technical scenarios that you prefer, combined with the time of day, enhanced by your mental inventory of what you are experiencing emotionally when processing your trades.

The more combinations you employ, the more thorough a process you will have to determine your trades. While this does not guarantee you more success, it will likely keep you from significant blunders.

Listen to Yourself

The previous rule relies on this vital step; paying attention to your personal patterns. However, equally important to the trades you are taking is why you are selecting them, as well as your internal process. Inevitably, there will be many conscious thoughts were are aware of, as well as subconscious ideas that we can detect when we begin to pay attention to our heart rate, breathing patterns, emotions, and automatic thoughts.

For example, last week, I remarked on the mental game that tries to inform us that we will miss out if we don’t take this trade. The reality is that it could be an accurate assessment. However, that is not worthy of basing a trading decision on. The more we pay attention to these internal assessments, the easier they will be to recognize and correct.

For instance, if that is your motivation, not missing out, you’ll know it’s probably better to sit on the sidelines once you detect this. After all, the winning formula is not rooted in fear of missing out. But, on the other hand, if you cannot control these mental games, and few of us can, it’s much better to walk away and quit the game. 

Maybe not give up on the entire session, but to at least take a walk, get a drink, or whatever resets you. Otherwise, it is like driving a vehicle out of alignment; you try to steer center, but it keeps pulling to the left or the right. One additional benefit to listening to yourself is that it will enhance your trading career and assist you in every other facet of living. 

Broaden Your Perspective

If you tend to be eager about finding trades, it often means you are uncomfortable being on the sidelines. Rather than trying to change yourself, you may want to find a way to accommodate your needs. One answer is to watch multiple markets. This, of course, assumes that your analysis and risk management tend to be sound, and your glaring growing edge is the lack of discipline that makes you impatient. If this is the case for you, it may work to flip the script and turn your weakness into a potential strength by employing your methods across multiple markets. 

With various futures and forex markets and many stocks to choose from, you have plenty of markets to select from. Try two or more if one market doesn’t give you enough signals. Of course, as with anything, there must be some restraint and caution. But, again, this assumes you have some solid skills with trading. Otherwise, you are only likely to compound your problems with more markets or get overwhelmed. It’s also important to learn your market and not just jump into something new spontaneously. 

Here is an actual case study. I knew a guy with a nice system that produced about 80% winners in his market that he traded day. This system averaged about one signal per day. The problem was when he would grow impatient and take trades other than what his system produced, which resulted in him losing money. Eventually, he began to employ his system on four markets. While the winning percentage went down to about 70%, still, he went from having a single trade most days to about five per day, which was enough to keep him active enough that he didn’t grow impatient. 

Multitask

For the most part, traders who have sound mechanics but struggle with market boredom and fishing for trades that come to them often avoid some of the simplest remedies. I think the most practical is engaging your mind with various things that prolong your patience. 

Let me be clear; you need to implement multitasking slowly. It does not work if you hurt your trading by losing your attention altogether. But, most trading platforms will enable you to create alerts that will signal you when your system is nearing a trigger, thus, permitting some mental breathing room that can be used on other things.

I know real-life examples of traders who do other things while letting the right trades come to them, including exercising. Beside their desks, they have exercise machines that they utilize to secure both a healthy physical and financial lifestyle. Another example is a trader who finished an academic degree while finding the time to read books and write papers while her trading platform gave her the alerts for the appropriate signals. Just think of what you could accomplish by responsibly multitasking!

It’s Up To You

In conclusion, these are just four ways you may consider using to become better at sitting and waiting for the right trades to come to you. There are no answers in life except the ones you make your own. Accordingly, it’s up to you to take any of these starter remedies and adapt them to fit your needs. Until next time, trade well!

The post 4 Ways To Help You Become a More Patient Trader appeared first on Topstep.

Coach TCoach T – Your Personalized Performance Coach

MEET COACH T

COACH T WANTS TO HELP YOU PREP

COACH T – TIME TO TRADE

COACH T – IT’S TIME TO REFLECT

COACH T – SETTING UP YOUR TRADERIQ TRADING PLAN

The post Coach T – Your Personalized Performance Coach appeared first on Topstep.

Trading isn’t just about making money moves. Research is an essential part of the process. Jack and Dan talk about doing your due diligence before a trade, how research gives you an edge, and the importance of learning the quirks of specific markets. They also discuss the pros and cons of different news and research sources and why charts should be the first and last stop when doing analysis. To end the episode, Jack and Dan take a moment to look back on the 2010 Flash Crash.

About Limit Up!

Limit Up! is a podcast brought to you by Topstep about trading, trading psychology, trading life, and pretty much whatever else the wonderful world of markets has to offer. It’s hosted by two former professional traders, Jack and Dan, who still dabble in futures, forex, options, political betting—they basically love to follow the action. They’ll teach you how to trade, but more importantly, how to develop the habits that make traders good. Risk Disclosure: https://www.Topstepquantumhub.com/risk-disclosure/

Topstep is the premiere funding opportunity for traders looking to make the most of market opportunities without risking their own capital. When traders pass the completely-objective Trading Combine®, Topstep funds them with proprietary money. Guaranteed. Beyond funding, we seek to instill better habits in our traders (hence the Limit Up! Podcast and other educational resources). Topstep has been based in Chicago since 2012.

About The hosts

Jack Pelzer is a co-host of Limit Up! He traded as part of a U.S. Treasury group for 7 years at Chopper Trading and DRW. After leaving the industry, he became a Writing Fellow and Senior Contributing Writer for The Onion. He is now the Head of Content at Topstep.

Dan Hodgman is a co-host of Limit Up! Prior to coming to Topstep Dan traded 30 Yr Treasury Options and Yield Spreads. Before that, he served in the United States Marine Corps where he simultaneously managed his own Futures Account applying the skills he grew up learning from clerking on the trading floor. Now Dan works with the Traders here at Topstep as a Performance Coach as well as being a regular on the Daily Market Recap.

If you’d like to receive new episodes as they’re published, please subscribe to Limit Up! in Apple Podcasts, Google Podcasts, Spotify or wherever you get your podcasts. If you enjoyed this episode, please consider leaving a review in Apple Podcasts. It really helps others find the show.

Podcast episode production by Dante32.

The post Doing Your Homework appeared first on Topstep.

Hello, traders. Today we’re going to talk a bit about how to set yourself up for success each and every day. It all starts with your preparation habits. Think about it like painting a room in your house. The prep work is the most critical and time-consuming part of the project; taping, laying tarp, priming, picking colors, getting the right brushes and rollers. The more prepared you are, the easier the actual painting is. The same goes for trading.

Routines Set You Up For The Day

When you sit down to get to work, you should be focused and have a clear head. Sounds easy enough, right? Some people can just roll out of bed in the morning and get right to it. However, for the rest of us, we need some time to get the blood and oxygen flowing before we start making any serious trading decisions.

One way to put yourself in the right mindset is to have a well-established routine. Not only will starting the day being productive set the tone for the rest of your day, but it can also help to lower stress levels. 

Building healthy and sustainable habits isn’t always easy. It requires discipline, but a structured process can help bring consistency to your trading. Plan your meals ahead of time, exercise, meditate, stretch, study, whatever… These are just a few examples of the things you can include in your daily routine. Start small, so you don’t burn out. Eventually, you will find that you’ve created the ultimate plan of attack for the trading day.

How Prepared Are You, Really?

First things first. What are your expectations for the trading day? What markets are you going to trade? Do you have a loss limit or a profit target in place? These are questions you need to ask yourself. Let’s run through a shortlist of preliminary “prep” questions to get you started.

1. What market are you going to trade?

Playing to your strengths is a big piece of the puzzle. Do you prefer slower-moving markets like Treasuries or the high-flying moves of the speedy Nasdaq? You also have to take into consideration the size of the account that you’re trading. High volatility and an under-funded trading account are a recipe for disaster. Start with a slow market if you have to, just to get your feet wet. No one wants to blow out of their account on the first day because they don’t know how to handle volatility!

2. What time of day will you be trading?

Is trading a full-time or part-time job for you? Markets move differently based on the time of day. This is a real thing. Do you know when the bulk of the daily volume trades in the markets you’re tracking? Well, you should!

If you’re doing this part-time and only have time to trade after-hours, you might want to spend some time researching a market that trades a little heavier overnight. If you’re a full-time trader, you need to be aware of daytime events like economic report releases and the “New York Lunch Hour” to set a schedule for when NOT to be in the market during the day.

3. What does your trading environment look like?

Maybe you trade from home in a workspace you set up yourself or go to an outside office to get out of the house. Do you prefer to trade alone, or do you like having a group of people around to share ideas?

You should be trading in a place that best suits your character traits. That’s why it’s also important to spend time on self-reflection before getting started trading. The more you know yourself, the more likely you will be to set yourself up for success. A toxic environment can poison your trading. 

Set Up Your TraderIQ Trading Plan

In your Topstep dashboard, under the TraderIQ tab, you now have the ability to set up and edit your very own trading plan. The new trading plan features include:

1. Personal Daily Loss Limit – So you know when to stop trading for the day.
2. Max Number of Trades Per Day – To keep you focused on better trade opportunities.
3. Max Losing Streak – So your emotions don’t take over and get you in trouble.

Test That Sh*t Out, First!

Did you know the Trading Combine and Funded Account both come with a complimentary Practice Account? Well, now you do. 

When you’re developing new setups and strategies, you don’t trade them live until you’ve backtested and simulated them. How else would you know if they work? We know this, so we added the Practice Account feature to give you a leg up on trade discovery.

Our Practice Account uses real-time exchange data to simulate a live trading environment. You can customize your platform to look identical to your Trading Combine or Funded Account setup and reset it as many times as you want. 

Coach T’s Team Has Your Back

We’ve put together an entire library of trading resources to help guide you throughout your trading journey. Between our blog, videos, podcast, FREE weekly group coaching sessions, and dedicated Facebook community, I’m sure we have an answer to your questions laying around somewhere.

For more actionable daily content, Coach Hoag and Coach Hodge go live every morning before the opening bell for the Market Forecast and again in the afternoon for the Daily Market Recap. Subscribe to our YouTube channel, and you’ll get notifications each time we go live!

Plan your work, and work your plan. We’ll be here to help you every step of the way. Trade Well!

The post Coach T Wants To Help You Prep appeared first on Topstep.

Your full-time, personalized, automated extension of our Performance Coaches is here, and it’s very cool. Like everything we’ve built at Topstep, Coach T™ was built by traders for traders. 

Good habits are so important when you’re trading, and I’ve learned it’s a hell of a lot easier to develop those habits and stick to a solid routine with someone by your side. Coach T gives you tools equally useful for your big-picture trading journey and for navigating every single trading day. When used together, you’ll be able to develop an effective routine: Prep—Trade—Reflect™. 

You’ll hear a lot more about Prep—Trade—Reflect over the next few weeks. Here’s a quick breakdown of the routine and the Coach T tools that will help you become a smarter, stronger trader: 

Prep

You need to set a trading plan— and, most importantly, stick to it! With TraderIQ, you can craft your plan and be held accountable. Your Discipline Score helps you monitor how well you are trading against your daily loss limit, max number of trades, and max losing streak. Unsure of your plan? Test it in the Practice Account. 

Trade

During your trading day, discipline and strong habits are key. Coach T helps you build both so you can leave rule breaks in the past. Turn on Alerts so Coach T can nudge you throughout the day. Think of Alerts as Coach T guiding you from the sidelines. Need to catch your breath or work on strategy? Head to the Practice Account. 

Reflect  

Coach T’s Analytics helps you reflect on your trading so you can make smarter decisions tomorrow. With personalized data and insights, Coach T helps you regularly and consistently evaluate whether your strategy is leading to long-term profitability. Think of using Analytics as reviewing game tape. Take what you’ve learned, and make improvements while you Prep. 

I’m confident that these tools will help you, and we’re excited to give our traders a new type of Performance Coaching. As always, you have our team to support you every step of the way. Over the next few weeks, we’ll go into detail about each step in the daily trading routine, Prep—Trade—Reflect. By the end of the next few weeks, you will have a stronger strategy and the tools you need to stay disciplined. Feel free to visit our Help Center to learn more about Coach T!

Trade well, and always trade for tomorrow. 

The post Meet Coach T appeared first on Topstep.

Traders Are Also Managers

By: FairValueTrader

Management is a crucial element to successful living in all facets of life, and when it comes to trading, becoming a good manager is imperative. Traders will know that trade management is a critical difference-maker in a trading career’s productivity and longevity and is the critical focus area. With an entrepreneurial spirit, time management, and broader financial management, control of our life’s economic plan is also vital to success. 

However, one of the more neglected managerial aspects we consider is that of managing our emotions. Each management area will be the difference in permanent success or failure in trading, and the emotional aspect is no less pertinent. A trader whose emotions are unruly may enjoy limited, short-term success but will never survive the long-term. 

One trader that I know had learned to balance his emotions about 99% of the time, and during that period, he was the most consistent trader I had ever seen. To borrow baseball terminology, this trader was a contact hitter with a high on-base percentage. He never hit home runs but consistently brought home his day’s pay by getting to first base. I had seen him have 20+ profitable days in a row, having a winning streak of 50+ consecutive trades. 

His weakness was on the occasions when his system misfired, maybe one day out of a quarter, but the problem was he would become emotional and strike out, giving up a month’s worth of gains. In other words, the 1% of the time when he became emotional, his results were detrimental. 

Busting Myths About Emotions

Today’s article will address the theme of how to become better at managing emotions. I often remind our readers that every individual has different personalities; therefore, you can pick out what connects to you out of this data.

First, it is necessary to bust a couple of myths concerning emotions. Feelings are not wrong! We often treat emotions as though they are an enemy when, in reality, emotions should become our friends. What becomes problematic in life and trading is when any of us becomes imbalanced and fluctuates between emotional extremes. 

Trust Your Feelings

I recently had the occasion to watch a couple of episodes from the original Star Trek series. You’ll recall Mr. Spock, a Vulcan who has learned to lean purely on logic while discarding emotions. The same can be said of “Data” from the Next Generation series. A recurrent theme of these characters is how their assessments of various challenges were incomplete because they only utilized logic while failing to understand emotional aspects.

Emotions are very much a part of life and very natural. Emotions help preserve us while also aiding in our interpretation of living. I noticed my three-year-old daughter had a natural fear of heights, even without understanding the concepts of life and death deeply. This fear is part of our natural disposition to keep us safe and alive. 

Therefore emotions are not an enemy, but we are responsible for creating a friendship with our feelings, knowing how and when to utilize them properly. As long as emotions are a bad word in our vocabulary, we are unlikely to approach emotions healthily and beneficially. 

Embrace Your Emotions

The second myth to address is that emotions should be avoided by shutting feelings out and ignoring them. This is not only psychologically unhealthy but is also harmful. To own our emotions, we must first be aware of what our feelings are. I earned a degree in psychology, and part of my training was in observing how frequently people go into denial over their emotions. When it comes to trading, this kind of denial is what causes financial catastrophes.

A trader can take one positive step by keeping a trading journal that catalogs all kinds of information, including emotions. The more you take inventory of yourself, the better you are at detecting your emotional patterns. 

A trader I know took this advice and realized there was a particular time of day when she became more apprehensive in her trading. After circling the reasons why we noted that her routine for a few years had been to take specific actions in caring for her young children at that time of day. Even though circumstances had changed, she naturally became more emotional in her trading during this part of the day, and it was reflected in her profit and loss statements. 

Some people would choose to ignore trading during that time of day. Others, like her, once she recognized that she was susceptible to apprehension at that time of day, she owned her emotions and adapted. 

One final example comes from a man who sold his business and began trading. On Fridays, his trading was horrible. It turns out that when he owned his business, Fridays were the most stressful day, and those emotions carried over to his trading. His solution was to become a trader Monday through Thursday. 

Understand How You’re Feeling

We probably often reflect on the ramifications of fear when trading the markets, and rightfully so. Fear can cause us to miss out on good trades or take bad trades. Anger can cause us to revenge trade, becoming a Captain Ahab of Moby-Dick, searching for a whale. I think we all know these feelings, which also include disappointment and depression, are not only harmful to trading but also, when they become our predominant dispositions, seriously damper our life experiences. 

What might be generally considered positive emotions can be just as troubling as the negative ones. The following story was a personal one when joy became ecstasy. 

Big Hits Can Be Good and Bad

It was a Friday afternoon, and I swung for the fences on an options trade which was essentially a lotto ticket with thirty minutes remaining in the session and in the life of the options contracts. Not only did I hit a home run, but it turned out to be a grand slam. I made several month’s worth of salary in thirty minutes. 

However, I realized that I was having difficulty allowing my joy to subside to median levels. In fact, I was in ecstasy for days, and I couldn’t settle myself down to a healthy place. Eventually, I needed more thrill, and I began to gamble over the weekend, trying to re-create my good feelings. A short while later, I suffered the most significant loss in my career.

The point is, any emotion, when it becomes undisciplined, takes control of us and can be destructive. At that moment in my life, I realized why many of my predecessors and counterparts where I worked in the financial industry had suffered from many addictions; from gambling to chemicals; because, in part, of the euphoria that we experience when trading and how we want that feeling to maintain. 

Trade Like A Robot

This is why the momentum has moved to algorithmic trading. Not only are computers able to process information quicker than the human mind, but they are also unaffected by the previous win or loss. They carry no anger, resentment, or joy. We can never reach that level as humans, but we can recognize and own ourselves as emotional beings. We can plan according to our emotions by automating our trading exits and even walking away while trades are working if need be. 

Remember, emotions should be experienced appropriately, and where our emotions present a problem, there is a solution to be found. I won’t say “trade without emotion;” instead, I will encourage you to trade with healthy emotions. Until next time.

Trade Well!

The post The Myths, Realities, and Remedies of Emotional Trading appeared first on Topstep.