While surfing the BabyPips forum recently I came upon a thread linked to a discussion of emotional control in trading. The original article (which I think came from a newsletter) had the title “7 Steps for Keeping Your Emotions in Check during Tough Markets”. The Steps were as follows:
#1: Do not over-trade.
#2: Do not take on too much risk.
#3: Do not look back.
#4: Do not sell your winners too soon.
#5: Do not hang on to losers too long.
#6: Keep your ego out of your trading.
#7: Find a good plan and stick with it.
In my view, the only three items on this list which actually help control emotions are #3, #6 and #7. Putting prior trades in the rear view mirror tends to help us not get caught up in past performance, as does trading with a minimum of ego. Sticking to a good plan, of course, is an absolute must for keeping an even keel when trading.
The rest of the Steps, to my mind, are actually things that are more the results of overly emotional trading rather than causes. We over-trade, take on too much risk, cut winners early and hang on to losers because we are emotional. As such, I’d say not doing those things helps to minimize the impact of emotions on trading, but they don’t really keep emotions in check, so to speak.
That’s just my view. What do you think?