Prop trading is a form of trading that is considered the riskiest and just like other forms of trading, it requires experience and discipline. Experience may be gained from understanding various theories, but experience is also related to self-control and self-control is closely related to discipline. Discipline is essential in any trade, especially those involving funded trading, and without it, no matter what skill or understanding you have, it will be useless.
This post will explore traders’ emotions in prop trading and how to control them. Better emotional control means better trading decisions. Sometimes simple trading techniques are enough to generate constant income. The condition is good self-control.
What are emotions in trading?
Emotions in trading can actually be divided into two; fear and greed. These two forms of emotion are the biggest causes of prop trading failure. Fear makes us sell too early while greed makes us enter trades at the wrong time. Often we actually already know that it is not the right time to enter a trade but we still force it and in the end “we lose.”
That’s a classic problem in prop trading (and other types of trading). So many people fail in trading for a long time and during that time they may “have lost their life.” Just because you can’t control your emotions, even the smartest trader can get caught in disaster.
Entry point and exit point
Determining entry points and exit points is one solution to controlling emotions because by being disciplined at these two points, you can control your emotions more and that is good for you. Don’t forget about how much you can afford to lose and how much you can take advantage of. The key is to determine the maximum loss size and maximum profit size in a trade. In essence, determining loss and profit points minimizes impulsive decisions. Impulsive decisions can make trading feel like gambling. Practice, practice, and practice can prevent someone from making impulsive decisions. Taking on a prop firm challenge can help sharpen a trader’s intuition.
Risk management
Risk management includes many things, one of which is determining the maximum amount of losses and profits. Another aspect that is regulated is when someone needs to enter a trade, what shape the candle will take, what trend is strengthening or weakening, and so on. Good risk management means good trading decisions and such management is intended for long-term “use”.
Positive mindset
A positive mindset is another foundation for prop trading success. A positive mental attitude fosters enthusiasm and avoids pessimistic attitudes that can kill dreams. A positive mindset can be built by carrying out risk management in a disciplined manner, step by step. A trading journal is something that must be designed as a tool for analyzing trades that have been carried out. This analytical tool is very important as a trader’s reference as to whether everything they have done so far has really been successful or not. When a trader realizes that there has been positive progress in recent times, a positive mindset and optimism will grow by itself.
Learn from mistakes
Learning from mistakes is also very important because the absence of introspection means there is no awareness that someone may have made a mistake. There is always the potential for someone to make a mistake and if the mistake continues to be repeated, it is very doubtful that the trader will be able to achieve consistent profits. By continuously learning from mistakes, a trader can minimize the mistakes he might make, and as a result, he is very likely to make consistent profits in the long term. Isn’t that every trader’s dream?
And maybe the last thing is to maintain physical condition
Fatigue is the enemy of all traders and trading is not just about knowledge, understanding, and controlling emotions. Trading is also about physical endurance. If you are not in top physical condition, your concentration will decrease and as a result, your trading decisions may be wrong. Physical weakness or unfitness means decreased concentration and decreased concentration means everything that has been prepared can be “disintegrated.”
All risk management, understanding, patience, and risk control will not be able to be applied if it is not supported by excellent physical condition. That is why maintaining physical fitness is very important. Prop trading is essentially memory repetition in the sense that if you make a certain failure, naturally, you will probably repeat it. If you fail because your physical condition is weak, it is very likely that you will be irritated and your psychology will be disturbed and we all know the final result.
Conclusion
Mastering emotions is the most important thing in prop trading and for that, there are several aspects that need to be considered. Risk management, determining maximum losses and profits, reducing fear and greed, introspection, and what is no less important, keeping the body in top condition. In this way, a trader can learn from mistakes and step by step improve his trading performance.
