Avoiding Emotional Trading by Sizing Down

Experienced traders will tell you to avoid emotional trading. You can find it listed in many, many “do not” lists out there in trading guides. I wholeheartedly agree with this philosophy, and I will go one step further and say that you should avoid emotional trading whether the emotion be good or bad.

That’s not to say that you shouldn’t be happy after you make a good trade. You should be! But only if you’ve followed your plan. If you’ve made money on a foolish gamble, if you’ve not followed risk to reward ratios, or used way too much size, you should be aware that you’re lucky you got away with the trade and landed in the green. Elation and euphoria emotions should not present themselves if you’re trading with a position size that’s responsible for your account size, nor should depression or dark moods. If you’re trading with proper size, following your plan, and sticking to your rules, a profitable day will be one that you can walk away from proudly and with confidence. A proper loss day will be exactly the same, but with a small, manageable loss rather than a profit. You should still be proud of protecting equity, guarding against risk, and following your plan. By sizing down and taking out the heart-throbbing excitement, you’re trading logically rather than emotionally, and your trading expertise will guide your trades instead of anxiety and nerves.

Once you’ve zeroed in on trading strategies that work for you and have minimized your emotional trading, consistency will build equity, and you can begin to take small steps up in position size. If you feel sweat starting to bead up while waiting to see if a symbol moves a few cents against you, you know you’ve take too much size and can readjust.

Happy Trading!