Chapter 3-2 Psychology and Discipline

Emotional Control  

“The sign of an intelligent person is their ability to control their emotions by the application of reason.”

Mayra Mannes

The bad news is that you’re not as smart as the market.  The good news is that being smarter than the market is neither possible nor necessary to achieve success as a trader.

There are those who would argue that the market is always right because in an auction market environment a buyer and seller will agree upon a price.  A stock’s price is determined by market participants who see eye to eye for a moment in time.  Perfect.  Others would contend that the market is always wrong.  This assessment acknowledges the fact that a buyer and seller do indeed come together to discover price.  However, this argument when drawn to its end examines the very nature of market participants.  It asserts that traders are just people.  People it is argued are emotional beings influenced by greed and fear who lack the ability to be logical.  Therefore, a logical price level can never be attained because the market participants are inherently flawed and unable to find such a level.  Not so perfect.

We suggest that all new traders take a Zen-like approach to trading.  Understand that the market is neither right nor wrong.  Rather, the market is.  By understanding the seemingly uncontrollable conditions that push, pull and move the market you will begin to unlock the emotional component necessary to co-exist with it.  So, if the market is never right and the market is never wrong who just lost all of that money.  You did!   Moreover, your inability to accept that loss and properly catalog it in your psyche will eventually lead to greater and more frequent losses.

On the flip side of the coin you may eventually experience a string of winning trades that seemingly will never end.  It will.  What is important to note is that whether you are having a positive or negative trading experience you must not allow the market to bring your emotions too high or too low.  You cannot control the market as previously discussed.  You can only control yourself within it.  The next trade could be the one that makes or breaks your account balance.  Stay calm, think clear, and breathe deep.  It’s not personal.

Learning from Mistakes


“There are no mistakes or failures, only lessons.”

Denis Waitley


Wealth like energy is neither made nor lost.  It is merely transferred.  So, if you were going to transfer some money out of your trading account into the equity market wouldn’t you sleep better knowing that you received something for it? You can.  Every losing trade (and winning trade for that matter) in your account is an opportunity to improve your trading skill set.

If you insist on not learning from your mistakes you will never refine your trading skills and will continue to reinforce bad habits that will lead to more losing trades.  You will develop a pattern of destructive behavior that will become very familiar to you and in turn you will have accepted failure.

Q:  So how do you transform temporary set backs into future opportunities?

A:  Try to identify with the following concepts:

  1. This is a difficult business so give yourself some credit for the positive aspects apparent in your trading, but at the same time be your own worst critic.
  2. Never settle.  Do not focus on how much money you made today.  There were at least ten opportunities you missed to make more.  What could you have done to put yourself in a position to capitalize on those opportunities?
  3. Review your trades after the fact.  By going over trades at a later date you allow time to offer perspective and insight that may not be available in the heat of the moment.  It may be advantageous to involve someone else, such as an Equity Scholar mentor, in this review process.
  4. Evolve.  A good trader is constantly looking for an edge.  You will never gain that edge or progress to the next level if the stepping stones you are using for support are on unsteady ground.
  5. Hold yourself accountable for your mistakes.