Have you ever found yourself frustrated or angry, but didn’t know why? Perhaps you were innocently monitoring a position and the market suddenly turned, and when it did, you watched half of your potential profit evaporate. You would have thought a commonplace event such as this would be taken in stride, but it was not. For some reason, you felt threatened, upset, and scared. It was as if a centrifuge of emotions took over, and there was no warning. It just overtook you. You didn’t expect it. You were not sure why you were so incredibly upset, but all you knew was that you lost concentration and could no longer focus on following your trading plan. You couldn’t think clearly. You were in a daze. Once you lose control, it’s hard to regain your concentration and focus, but unless you do, you can’t trade profitably.
Why do we over-react at the wrong time? Our expectations often control our emotions. When our expectations don’t match what actually happens in the markets, we react emotionally and impulsively. We have a natural human desire to win, but the markets don’t always cooperate with us. When we are caught off guard, our knee jerk reaction is to think that the markets have treated us unfairly. We start thinking that things should go our way, and when they don’t, we get angry. But trading is a profession where you should work under the assumption that things are not always going to go your way.
Trading events may not go your way, but you don’t need to let this fact of trading overwhelm you. If you are caught off-guard, a losing trade or unexpected setback will disappoint you. If you anticipate such events, however, you’ll stay calmer and more relaxed, ready to take decisive action to remedy the situation.
It’s vital to anticipate adverse events rather than react impulsively and emotionally. Don’t expect everything to go your way. If you believe that such adverse events should never happen, you will react with frustration and anger. And if you are too angry and frustrated, you will not be able to act decisively. You will not be able to respond quickly to potential problems. Rather than get angry, frustrated, and become distracted, you need to think calmly about how to take evasive action to protect yourself. If you anticipate the problem, you will calmly think of an alternative plan, and put it into practice.
When trading the markets, setbacks and adverse events are the rule, and without the proper mindset, such setbacks can be paralyzing. As a trader, it’s vital to have the right mindset. If you realistically anticipate setbacks and adverse events, you won’t be caught off guard psychologically. Instead, you’ll be able to bounce back quickly, make new profitable trades, and come out ahead in the long run.