Emotional Management in Day Trading

We all know the feeling of being in a trade with a larger than normal position size and the feeling of angst starts to vibrate through our bones. Our heartbeat gets louder and faster, our palms sweat. Maybe we get a tingling feeling through our body or a tight feeling in our stomach or chest.  These are all symptoms of a potential triggering of emotional hijacking.


If this trade turns into a losing trade, we will be left with these symptoms in our body for us to deal with, along with a negative PnL. But, If the trade goes in our favor, we will be ecstatic and potentially trade an even bigger size or get more aggressive to keep gains coming while it’s hot. Either of these two outcomes could be potentially disastrous if you are not aware and able to manage the polarizing emotions while trading.

In the case of the first scenario, you are faced with dealing with these negative emotions immediately. Many times our first instinct is to immediately jump into another trade in order to alleviate these feelings of loss, pain, or embarrassment. We jump in with a bigger size in order to recover the loss in 1 trade, but while being drunk off an emotional cocktail your rationality may be right out the window, which is what is known as being emotionally hijacked. When you are emotionally hijacked you are not thinking logically and all you want to do is to get back to where you were before you took the loss. These immediate successive trades usually end up in taking more losses. In the chance that you do recover the loss while being emotionally hijacked, you may be teaching yourself to break your own rules if you are beyond your max loss. The importance of following your rules is imperative to staying profitable as a trader, and if you are able to have the emotional strength to walk away when you are beyond a set max loss, then you have a better chance to make it back in the next trading day.

In the case of the second scenario, you just hit a big winner on the biggest size you’ve ever taken. You are ecstatic and overflowing with confidence. These emotions feel amazing, like you just took a double dose of Ecstasy. These emotions traders would never expect that you would need to keep in check as well. Most traders want to avoid the negative feelings and attach to the positive feelings. But, when you don't manage the positive emotions from making a big trade, you could potentially get emotionally hijacked on the opposite polarity of emotions. You may start to spill over into overconfidence instead of self pity or shame like you would in the first scenario. You may start to overtrade or trade setups that aren’t really there. You may oversize on an extended stock or be overly optimistic about how high the price could really go. This type of emotional hijack is potentially far more dangerous from the first, because most traders never see it coming. With winning trades it’s easy to let your guard down and get hit harder than you’ve ever been before.

This is why managing emotions in trading is a lot like walking a tightrope. You don't want to lean too far to one side or else you risk falling over. If you can have the emotional strength to reel yourself in from either emotional polarity, then you can avoid a lot of unnecessary losses and headaches. When you can see the symptoms of potential hijacking and be ready for it, you can stop yourself from trading with emotion. When you are under the spell of self-pity, discouragement, or anger, you can walk away and follow your rules. You can take a break, work through the emotions, and come back later. It’s ok to lose a battle and still win the war.


If you start to feel overly optimistic and positive after a big win, then you also need to be on high alert and aware or else you can take a devastating loss, wiping out all of the gains in 1 trade. After a really big day it is often not too long before a big loss hits the account. This is because the feelings of overconfidence need to be put in check for the next trade or the next trading days, or else the market will eventually humble you. It is important you don’t let your guard down after a string of big winners, and instead become more and more selective on your trades to avoid taking unnecessary losses from overtrading.

Emotional Management is one the key pillars of being a successful trader, and without it, you are likely to blow up. Emotional management is knowing how to accept losses and how to dampen your overconfidence without taking big losses, so you can continue to ride that fine line of profitability to new heights in your trading journey.