Trading is traditionally viewed as super high risk and sometimes a form of gambling. When trading in this manner it can be very easy to get swept around by wild emotional swings. You make a big win, you feel amazing! But then a big loss comes and ruins everything and you feel terrible. I can say from experience that this is not a healthy way to live – it’s bad for your equity and your mental health.
I like to take a different approach. Consider trading as short-term investing. With investing you typically have an entry strategy (research, risk considerations etc.) and an exit strategy (profit target, loss tolerance). Everything in between is out of your hands and, more importantly, out of your mind.
By using this method, the trade is essentially formed into a binary outcome – the trade either makes a profit or a loss. Our goal, then, is to make our pre-execution research as strong as possible. We do this by sticking to the trading plan if we are making profit, and adjusting when we make losses.
I like to draw an analogy from poker: Once your money is in the middle, it’s no longer yours. All you can do is adjust your play to make it more likely that you win the pot.
Essentially this means once you’ve made a trade you are no longer emotionally attached to the equity tied up in that trade. Removing these emotions greatly helps when it comes to critically analysing your trading strategy and will help you become more successful in the long term.