How are you feeling? Were your palms sweating as you placed that last trade? Was your heart pounding the whole time you had the big trade on? Are you trading for excitement or to make money?

The hardest part of trading is not math, it is not even developing a good methodology and system.  Risk management in itself is not difficult. The problems arise when we are pumped so full of adrenaline we can not do the right math. We are so full of pride that we can not follow the system and cut the loss. Our ego ignores risk management in the desperate attempt to “get back our lost money” in one trade. The problems in trading are not out “here” they are in the little trading floor in our heads where pride, fear, greed, doubt, shame, and stress all try to out bid each other to be able to control your next action.

Emotions are not weaknesses they are protectors and communicators. We are a village of logic, thoughts, and emotions and we need them all flowing correctly for balanced and healthy trading careers.

Fear increases your ability to respond effectively to new or changing situations that contain uncertainty or some danger. If you are fearful in a trade then your emotions may be telling you the trade is too big or you do not have faith in the method to win in the long run. You need to trade at a size that you are comfortable with whether you win or lose. You need to back test your method and learn about others that traded your method and style and were successful with it. You need faith in your trading.

Stress is simply a fear based readiness response that tries to activate and prepare you for change and unpredictability. There is good stress where you are mentally positive and excited and ready for action and there is bad stress with sweating palms and pounding heart and overwhelming fear. You have to trade at a level where you are engaged not overwhelmed. Sometimes it is best to go to cash if market action or volatility gets you confused to a point where you really don’t know what to do.

Our own ego is our biggest barrier, it will not cut losses because that means it is wrong, it hates admitting it is wrong.  It is the ego that wants to quit after a losing streak because of the shame it feels. the ego’s very purpose is to keep us safe and out of danger. We have to show the ego that trading is a business and winning and losing has no effect on our self-worth. The market simply was not conducive to our method, it is not about us. We are truly our own worst enemy.

Some emotions deliberately impede our ability to follow the wrong path and do the wrong thing with our trading capital. To truly grow into the trader we want to be we have to go up step by step and win at smaller levels of capital before moving to the next level. We have to back test and paper trade to prove to ourselves that our trading will be successful before we begin with real money.

Emotions always bring with them a message. When your emotions are welcomed and honored, they move easily and quickly-they arise in response to real situations, they contribute precisely what you need, and then they retreat after you react to the message with adjustments in actions.

Emotions aren’t your tormentors; they are your tools, your guides, your protectors, and your allies. Even you are feeling a very strong emotion the odds are that something is really wrong and you need to figure out what it is and correct it.

Some of my favorite books on dealing with a trader’s emotions: The 12 Habbitudes of Highly Successful Traders and Overcoming 7 The Deadly Sins of Trading.

More advanced books by Alexander Elder and Brett Steenberger are also excellent.

If you can’t manage stress and fear, you can’t trade.