How do you manage emotions
when trading?
And you see, when trading,
there's two main emotions.
And the main emotions that we all
have as traders is greed
and fear.
Let's talk about fear first.
Most traders fear
that they have a loss,
that they lose money.
So, here is how
you manage fear as an
emotion.
You keep your losses
small because when you keep your
losses small,
you shouldn't be afraid of the losses,
and one of the rules that I like
to use is the 2% rule.
The 2% rule means is: never
risk more than 2% of your account
on any given trade.
And let's think this through.
So, if you have a $10,000 account,
it means that you should never raise
more than $200
on any given trade.
Now, if you are afraid to lose
$200 when you have a
$10,000 account,
well, honestly,
you shouldn't be trading because
you should be real relaxed
and say: yeah,
$10,000 account... I'm fine risking
$200 because here's the other thing...
The next emotion is greed,
right?
And this is where as traders,
we want to make the trade that makes
a million dollars.
A trade that makes a $1,000.
A trade that makes $50,000.
A trade that makes back all
the money that we have lost
in the past, right?
But it doesn't work this way.
So, I like to use the golden rule,
and this means
1:2, meaning for every
$100 that you risk,
you're trying to make $200.
Not $800.
Not $1,000.
For every $200 that you risk,
you try to make $400.
Now think about it.
If you have a $10,000 account,
and you risk $200
to make $400,
right? It's a very systematic
approach. And in fact,
when you use this approach,
you can be wrong half of the time
and still make money.
Let me prove it to you.
Let's say you're risking $200 on
any given trade,
and let's say you're placing 10 trades...
Now out of these 10 trades,
5 of them are losing trades.
How much do you lose?
5 times $200
is $1,000,
so you lose $1,000.
On the other hand,
you're trying to make $400
on your winning trades.
Now 10 trades
and 5 losing trades means that you also
have 5 winning trades.
How much do you make on the 5 winning trades?
5 times $400
dollars because again,
you're risking $200 trying
to make $400.
So, if you make 5 times $400,
this means that you're making $2,000.
So, let's do the math.
Half of your trades are losing trades,
and on your losing trades,
you lose $1,000.
But on your winning trades,
you make $2,000.
How much is left after 10 trades?
Exactly! You still have
$1,000 left to trade,
right? So, this is the beautiful thing
here about using
these principles that I
personally have been using for...
I don't know how many years,
that you risk
only 2% of your account on any given
trade, and then you try to make
twice as much money as you
lose. This is how it became
easy for me to manage
my emotions because these days,
I know exactly
where to exit even before
I enter.
The trades that I'm in right now,
I talked about this earlier...
So, right now I'm in CRC
and SLCA.
I have already my profit target
and my stop loss in the market
and right now,
I could just lean back,
relax, and don't have to worry about
it, right? Because one of the biggest
challenges of traders is that...
Well, they don't know
when to exit.
Well, "have I made enough money
on the stock" and most often
it's never enough.
Right? Or "should I get
out? If I get out,
I'll lose money." Get out when
you risk 2% of your
account.
Hope this helps.
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