9 Tips to Trading Without Emotion, Part 3

Here is the third and final piece of Markus Heitkoetter's series on trading without emotion. His previous two articles on this subject can be found by clicking here for part 1 and clicking here for part 2.

#7 Focus on Following Your System, Not Your P&L

Successful traders pay attention to their emotions. They try to keep a distanced, critical eye on how they are reacting to the market in order to control their emotions instead of being controlled by them. This helps them stay cool, calm, and focused on their long-term goals instead of getting overly afraid or excited about the trades they are paying attention to at any given moment.

Furthermore, successful traders know what type of trader they are. They don't force themselves to trade with methods or strategies that do not fit their personality. Too often, people will hear about another's success and, whether out of envy or a lack of self-confidence, they feel compelled to copy that person.

This is a recipe for failure. You will only be successful with strategies that you understand and have confidence in. Almost any strategy can be successful if used in the right hands, and your goal should be to find out what works for you. There is no magic strategy or everyone would already be using it. But to know what works for you, you have to pay attention to your own comfort levels, your own insight and intuition (which strategies just seem to "click" for you), and what inspires confidence and security in you.

Finally, know when your emotions are becoming too powerful. Recognize when you are starting to trade based on a reaction rather than a plan. Successful traders take time off when they see themselves starting to act this way. They realize the importance of taking breaks from trading and the markets to clear their heads. They also know that stopping for awhile can help them regain focus on their long term goals and their overall strategy, not the success or failure of individual trades.

Keep your mindset focused on your system, not your bottom line. A series of losses may actually be more profitable in the long term if they teach you how to improve your system or help you identify a particular technique that works. This is what it means to keep a long-term perspective, and the most successful traders know that the long-term is the only thing that matters in day trading.

If you can integrate these insights into your own psychological mindset, you'll gain a significant edge in the market. I can't stress this enough: the right mindset is one of the keys to investment success, and most traders fail to understand this.

#8 Don't Let Negative Emotions Control You

Successful traders do not allow negative emotions to affect their decision-making. Trading is a stressful process, and you will experience many setbacks. Expect them, however, and don't see losses as indications that you will never succeed. Instead, be prepared to identify your negative reactions and act on them in positive ways.

Successful traders turn fear into gain. They realize that losses are a part of their business, and they expect them. But while they know that some trades will cost them money, they let those same trades become a gain in knowledge. Remember that each time you have a loss, this gives you some guidelines on how to alter your strategy. Perhaps your stop loss needs to be set higher, perhaps you need to alter how you identify trends, or perhaps you need to use new indicators.

The key point is to remember to turn fear of loss into anticipation of learning. Otherwise, your fear can cause you to forget to ask why that trade was unsuccessful and, in the worst cases, to unwisely overtrade to try to compensate for your loss.

Along similar lines, successful traders do not blame anyone or anything for their losses. They accept their setbacks and refuse to dwell on them. Instead, they learn from their mistakes and move on with their trading. Focusing on blame can cause you to feel insecure and lead you to make unwise trades to compensate for your losses. Or you may feel a desire for revenge against some non-existent enemy that "caused" your loss. Both of these emotions will distract you from your real goal of understanding how to revise your strategy based on what you learned from this trade.

#9 Take Action

Finally, successful traders always take action. They don't let their fear con­trol their decisions or interfere with their trading. They don't linger unnecessarily in a losing position, hoping for things to turn around. But neither do they let insecurity prevent them from making trades or acting according to their plan. There is always time to revise your plan and try it again. Day trading requires trial and error, and you should act confidently, knowing that even if you lose money, you will gain insight into how not to lose money in the future.

If you can integrate these insights into your own psychological mindset, you'll gain a significant edge in the market. I can't stress this enough: the right mindset is one of the keys to investment success, and most traders fail to understand this.

Markus Heitkoetter is CEO of Rockwell Trading, Inc. He has been trading for 19 years and has developed numerous trading systems along the way. He has spent the last 5 years teaching his strategies and methods to hundreds of traders worldwide, offering seminars for clients including the CME, Eurex, FxStreet, and Strategy Runner.