How To Optimize Your Emotional Capital

Managing your emotional capital is just as important as managing your trading capital.

Emotional capital is a finite resource, and it directly relates to how we the trader are feeling and our decision-making ability.

When we are feeling anxious, upset, or depressed, for any reason, then we tend to do direct damage to our trading account, most of the time without even knowing it.

Emotional capital is one of the most important concepts to be aware of and positively reinforce throughout the trading day.

It starts by coming into your trading session ready to trade.

Not to eat breakfast, check Facebook, or browse Amazon for a new keyboard.

Only to trade.

Take the time to prepare your mental state before you start your day.

The moment you start looking at charts and taking trades the market is going to start playing tug of war with your emotional state. Red and green flashing numbers everywhere, price bars moving all around your screen, and headlines coming at you left and right.

It’s an assault on your state of mind.

Here are four tips to help keep you in the zone and in control during your next trading session.

Learn To Handle Losing Trades

They are going to happen and they’re probably going to happen often. You need to fully accept that it is perfectly reasonable for you to lose 50% or more of your next 10 trades. No one enjoys losing money but if your a trader then you’re going to have to figure out how to handle this and execute objectively.

Learn To Handle Winning Trades

Sounds easy, but it’s very easy to experience a little euphoria after a winning trade or two. It’s important to feel confident and reinforced after a winning trade but it can be a bad thing if you feel like your suddenly the greatest trader in the world and immune to mistakes. Don’t lose your discipline after a few good trades.

Learn To Accept The Probabilities Of Trading

You can have days, weeks, even months that you may not make money. These extended periods of time are the true tests of one’s emotional state. Just because you are down money for the month doesn’t mean you need to try and revenge trade your way back to profits. Trading aggressive when it’s not the right time is a sure way to dig your hole deeper.

Trade Smaller

If you find that are on an emotional rollercoaster with every position you put on, then you are trading way too large. It’s fine to feel some knots in your stomach from time to time, the best trades often are the uncomfortable ones, but you should feel in control at all times. No one trade should be able to wipe out a weeks worth of gains.

How To Optimize Your Emotional Capital

At the end of the day, It’s your responsibility to remain introspective and realize when you’re getting tired, frustrated, or lazy in your approach. Some days you are just going to be more on with the market than others.

Keep the odds in your favor and stick to trading when you’re feeling good and when you’re making money. If things aren’t working out, step away.

This is incredibly difficult, but knowing when to trade and when to sit on your hands or walk away is one of the most profitable skills you can learn.

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Evan Medeiros

Evan is the founder of the Trade Risk. With 25 years of coding experience and a B.S. in computer science, Evan brings a systematic discipline to investing in the stock market.

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