What's up everyone? All right? So in this episode I Want to talk about how emotions Drive profits and losses As a day trader, there's no question about the fact that day trading and success in day trading is a combination of emotion and psychology and actual skill. You need skill to be a successful day trader. You need a day trading strategy. You need to know where to buy stocks, Where to sell stocks.

You need to know how to manage your risk. That's a given. But what some people underestimate is how much mindset and psychology will dictate whether or not you find success as a Trader and I want to give you this example real quick and then we'll jump in with a little bit more detail here. I'm going to show you on my whiteboard this example of a profit loss Equity curve.

So a lot of Traders You know naturally a successful Trader is hoping to have an equity curve. You know that looks something like this. You know a little bit of draw down, but generally green. General, you know this is blue, but you know you get the idea, generally moving higher and so on and so forth.

But what often ends up happening and the reason I'm using blue instead of green is because the green color is too light is you have a little bit of profit. Then you have some loss and then you start to snowball. And so what's happening emotionally in these areas? In these areas, emotionally you're starting to get really fueled. You're feeling like oh my God I Can't believe I'm losing I I Can't believe I Just took that trade.

You're starting to get frustrated. What happens when you get frustrated? you start to get desperate. You know you're sitting here in the red. You're on a red date and you're like man.

I Don't want to be red today I Don't want to have a red day going into the weekend I Don't want to finish the month with a red day I Don't want to start the month with a red date? You know what? It's never a good time to have a red day I Don't want it to be Wednesday and to be having a big red day. So whatever your excuses for why you don't want to have a red day, What you end up doing is taking actions to alleviate your emotional discomfort. You're feeling uncomfortable. You're feeling upset because you're red and so you now need to take action to make yourself feel better.

We're all like this. When we're in a position where we don't like it. We're problem solvers. We want to make the situation better.

right? It doesn't matter in life I Mean it could be in relationships and business. In anything. If something's not working, we want to fix it. And with trading when we're feeling really angry when we're feeling really frustrated because we just had a big loss, we want to fix that.

That's a motion that wants us. You know that's that's sort of the emotion. So what you have here in this moment is tension. You've got your loss and you've got your desired P L.

All right. So when you've got this Gap there's tension, right? Your body, Your your mind wants to resolve this tension and the only way to do it to get to this desired result naturally is to take a series of actions. in trading. this means to buy a stock, or you know to short it or whatever.

to start, to take some trades, to be able to sit with this tension and to not act. that is extremely difficult and so what. I've noticed even in my own trading. I've noticed that when the market is cold when I'm not trading well, those cold months get Amplified to the downside by emotions because I start to get frustrated I start to feel like man I'm not where I want to be on the month right now.

This is frustrating. So what do I do to resolve that frustration? I start taking more trades. but now I'm taking more trades in a market that I'm already proving based on my P L that is not really well suited for me. So what happens, well, what ends up happening if we go back to the Whiteboard is that the loss gets Amplified So you have the the curve up and then you have the draw down and rather than being able to say you know what, this isn't a hot market for me, you start pushing harder.

It's now your waves are getting bigger. Now this is a problem right in here. Allowing your drawdowns to the downside to get bigger because of emotions is not good. On the other hand, and some of you have seen my Equity curves when I'm on a hot streak.

I mean it's like My Equity Curve will go like straight up for that month. two month, three months, even a year. and why is that happening? Well in this case emotions are actually driving that profit Because what happens is I Get on a hot streak. When you're on a hot streak, you start feeling what really confident you're like man I'm trading really well.

Confident that leads to being more aggressive, taking bigger position sizes and that is emotional. I mean you can argue that that's acceptable and the reward is that you make more money so it's not. It's not a bad thing. Emotions aren't bad things.

I mean they're they're just emotions. But they can drive profits and losses. So how do we harness the emotions to let us drive profit while at the same time being able to, you know, recognize that emotions can also Drive the losses that right there I Think that's the biggest puzzle for Traders to solve. So let me share with you some of the things that that I do or that I think about as I'm kind of navigating these Waters So the first thing for me is so let's talk about let's talk about the upside just for a second.

more. So when I'm on a hot streak I I recognize that of course, because I'm having back-to-back days where I'm not just hitting my daily goal I'm like doubling it or tripling it. So my monthly goal is like I've already blown it out of the water in the first week of the month, you know? I'm just like with such a cushion that I feel really confident and that's a time where okay I recognize quickly that I'm trading well. The market is really favorable for my strategy.

This is the time to put the pedal to the metal, because the fact is, with Trading just like one or two really good months in a year each year, one one month can be 25 of your profit, right? So even though it's only one twelfth of the year, it can be a quarter of your profit. Even more, you can have one month where you make half your profit for the entire year. It's It's incredible how that can happen. I had, um, last year or the year before I had one day that contributed over 10 of my profit for the whole year.

Just one day and it was in a hot month. So like that just goes to show that when it's hot, you want to be pedal to the metal. You want to be aggressive. You want to try to squeeze out as much as you can from the opportunity.

So the right decision when it's hot is to dig deep is to trade a bigger size is to trade longer in the day each day to try to get the most out of the opportunity. Okay, it's easy to tell when the Market's hot because you know you're making money when the Market's cold. It's also easy to tell because you're not making as much as you normally do, right? So then tell me this. Why is it that when you're not making as much as you normally do that you push even harder? That seems kind of silly, doesn't It sure does.

I'm speaking to myself in the mirror because I do the same thing. So what drives that? How can I develop a better sense of self-awareness so that when I'm in a drawdown or or I'm even just you know, I'm in a P L where I'm definitely not going straight up and it's kind of more like you know this draw down, back up, draw down, back up. So it's kind of like, you know, just not really progressing. So over this over the span of like three months, you know there's profit, but it's It's certainly not a hot streak.

So I'll be honest. I struggle with this because there's a part of me that will say you know what. The Market's not very hot right now. So let's size down.

you know, let's take some money out of my trading account. I don't need to have so much in there and as I think about doing that, I'm like, well, you know I I know how quickly the market can shift on a dime. You know very quickly. All of a sudden it can go from cold to hot.

If I take the money out then the day I need it, it's not there. That could cost me a lot. So I hesitate to take the money out of my account. Well, I can reduce my share size so I'll often do that.

I'll set a limit on my share size I'll say you know what. This isn't the market that warrants me taking out the big guns and trading really aggressively. So set a cap to my share size. And this is a really helpful one for me because when I cap my share size, I am limiting my upside.

But what's more important, remember, during a cold stretch is limiting your downside. So limiting my downside. It just means that if it continues to be choppy, it's cold. Okay, I might still have some red days, but they're not going to be blowout red days and this is what's important.

Survive till you thrive. There are going to be months that are just a wash, but you can't take the whole month off. You can't just not show up because you never know what's going to be here. That is part of trading.

I Don't really know a great similarity to another career where you might show up every single day and get nothing done. Um, you know I you could I'm sure you could come up with some jokes about a career that might be like that. um, but like working like you know in Congress or something. but but realistically, um, as a Trader you will have months where you show up and you get nothing nothing done in in the sense that you you don't have p l Now you gain experience which is good, but at a certain point like for me, I'm at a level where the additional experience I Don't know that each extra day of trading after you've already had you know 10 000 days or whatever it is, how much it really adds, you know it sort of starts to have diminishing returns.

I'm I think um so so I think that during these cold stretches how in the because the thing is for me I get so sucked into the moment. you know, like I'm staring at my screen I'm staring at the piano I'm looking at the time and sales and the level two and I'm looking at the scanners and I'm like looking for the next stock and it's very easy to get sucked into that bubble. So you know when you're kind of experiencing this, um, this tension between you know your current reality and your desired reality right here you know and this is going to be most likely a P L of negative and this is profit. This right here is like tunnel vision and it can be really hard to pull yourself away and in this mode you can start taking a lot of really bad trades.

I Mean you could blow through like entry Exit loss entry exit loss. Like back to back to back to back and you look back and look at the damage later and be like oh my God What was I thinking Why? Why was it that I was so aggressive on this day? you know this was. this wasn't very logical and the second you say that, you're going to realize that. Hmm, that's right.

Because my logical brain was shut off. my emotional brain was making all the decisions in that moment. So then here's another question: What are your triggers that lead you to have these sort of emotional setbacks? So I have a couple for myself. One of them is if I have a modest Green Day and then I give back more than half of it.

So one of my rules of thumb is that I try not to give back more than 20 of my profit on the day and ideally at any given time. So you know I mean I don't really need to draw it out, but but let's say I make three thousand dollars. You know if I give back 600 of that, then I'm still up 2400 and that's kind of a time to walk away and say hey, that's good because if I give back half of it and I'm up only fifteen hundred suddenly I'm saying only fifteen hundred. It's not three thousand.

In fact, this is exactly what happened yesterday yesterday. I was up three thousand I finished the day up only it was about twelve hundred and I was not happy about that. Being not happy about that was my cue to walk away right then and there because if I can't be grateful for being up 1200, you know, come on, there's a lot of people to be very grateful, many of you tuning in for twelve hundred dollars. So when you're not grateful for the money, that's a problem.

Now you might be trading. Let's say, you're trading one tenth of what I'm at and you were up 300. Now you're up only 120 and you're like only 120. This is stupid Sues, you're not grateful for the 120.

There'll be someone else out there who would be grateful for it, and you could just give it right back in the market to them, right? So try to be grateful. So generally speaking, I try not to give back more than 20. and if I've given back half, that's when I'm frustrated. Now that's on a good day where I start to give back on a bad day I set my Max loss at 5 000.

if I'm down more than five thousand, my rule of thumb is: stop Trading in a hotter Market There are times where I can go down five or six thousand or even more and the Market's really hot. There's still lots of opportunities and if I'm able to maintain composure I can keep trading. That's a case-by-case scenario or because I I don't I can't tell you for sure whether or not I'm going to be emotionally compromised. Sometimes I could lose five grand and I'm actually not emotionally compromised.

so I'm like, whatever. that's fine. Other times I lose 3 500 and I'm like seeing red. So this I mean they should make a the Apple iPhone you know, watch or whatever for this because it sometimes feels like it takes something outside of ourselves to be able to say hey, wait a second, you've just crossed the line and maybe there is something with pulse and blood pressure or I don't know, whatever I don't know what the iWatch does, but you know, maybe there's something there that could help you.

But being able to recognize your tipping points is really important and if you can recognize them, then what you want to do is you want to learn once you're seeing those tipping points to walk away right then and there. Don't keep trading. walk away right then and there. Save yourself the unnecessary losses.

and if you get good at that, then this is what starts happening. You know you start having you know the slow climb up the drop. Where typically here in the past you would have gone down maybe and given back everything you just made. Now you're maybe giving back only half.

All right, because now you're self-correcting a little earlier and you're starting to come back up. So here you know if you've made the same recovery, well, you're still down this far right. you're still an emotional. You're still in the back seat.

So now here you have another setback and you're able to self-correct again quickly. Now typically you might have gone back down to here, which would have put you, you know again, this is the difference between a Trader who is making money you know, net profitable stair stepping up and someone who ends up stair stepping down. So how can we make the legs down smaller Because I'm telling you there is no Trader out there who doesn't have legs down. There's no one who doesn't have red days or red weeks or red months.

This happens that it just is part of trade. It's gonna happen. if it hasn't happened to you yet, you must still be in The Beginner's phase because you know beginner luck. That's fine, but it will happen eventually.

So the question is, how can you make the drawdowns as small as possible and the smaller you can make them the better. And understanding that emotions drive and amplify those losses is going to be really key to your ability to cut it off at the pass and get in there and divert that fomo angry, desperate energy before it costs you unnecessary losses. You know, taking one loss, That's how that happens. You took a loss.

It's fine. a second one. Okay, you took a second trade. It happens after your third loss in a row.

it's like, okay, stop doing what you're doing. This is not working all right. Fourth loss, Fifth loss, Six loss, Eight loss. Holy smoke.

So what is going on? But I've seen Traders Do it. They spiral. They get emotionally hijacked now. I Talk a lot about emotional hijack in my Warrior Pro classes.

We have two trading psychology experts who come on and we speak about this together because it is such a prevalent behavior that emotional that Traders struggle with emotional trading this emotional spiral so you're not alone if you've had it. Uh, but I hope that this, um, this is helpful to hear me talk about it and for you to recognize that you're not alone in it. And if you have a P L that is exaggerated where you have big swings I would say you're a Trader right now who's on the roller coaster and you could choose to stay on that roller coaster as long as you want. But when you're ready to get off I think now.

Hopefully you're better equipped to know what To do. Start looking at your triggers set. you know, hard stops around those triggers if I get back more than 50 I'm done for the day if I go down more than x amount of the day I'm done for the day if I have more than this many red trades in a row I'm done for the day. You start setting up those guard rails and those guard rails are like training wheels and they keep you safe.

They help you minimize the draw down and then hey, if you're amplifying the upswing because you're getting really confident you're getting more aggressive, that's okay. it's important to be aware that that's happening, but there the emotions are working to your benefit. So it's really during drawdowns. You got to be so careful.

I Hope you found this helpful and make sure you hit the thumbs up! Subscribe the channel and tune in for the next episode real soon.