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Jekyll and Hyde Trading

Jekyll and HydeI have come to a conclusion; no matter how great your method is it’s next to useless without the right mindset.

When trading you must get used to mixed emotions.

As a discretionary trader, have you ever tuned into your feelings when looking for setups? Especially when you find one that looks to be low risk and fits with your strategy. I bet you feel relaxed, upbeat and possibly excited.

The emotions aligned to the planning stage are like those that come with paper trading. There is no money on the table. Everything is chilled.

Yet after placing the trade, it’s as if an alter ego takes over. Another personality comes to the surface. Not so relaxed. Not so cheerful.

Especially when a break out trade starts to reverse. An element of stress enters. You start second guessing your research. Your strategy. Your stop.

Brett Steenbarger, a US Clinical Psychologist who is also an author and an active trader, said it best:

“People lose money in the markets because the person who places the trade very often is not the same person who manages and closes the trade. Quite literally, another self has taken over ...”

Planning our trades is generally calm, logical and less emotional.

Yet as soon as we place our trades and the markets open, more emotionally charged areas of our brains start to light up.

There is no doubt we have all gone through this Jekyll and Hyde / split personality phase at some stage in our trading careers. Whether you are an experienced trader or a novice, it’s difficult to make decisions without some degree of emotion.

We are, after all, human.

There is a solution to this phenomenon. It centres on being process driven and structured. Here are some ideas:

  1. Have a clear formal trading plan that isn't open to interpretation
  2. Only act on set ups that have an acceptable risk/reward. Ignore all else.
  3. Learn correct position sizing and stick to it every time. No exceptions.
  4. Place your stop outside where the noise is. Then trail it higher as price moves up.
  5. Don’t micromanage. Walk away. Get your adrenaline kicks elsewhere.

Dealing with one personality is easier than dealing with two! And likely more profitable.

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