Equity Management and Emotional Intelligence

This article is from one of our traders. Trader Nick will describe how Equity Management and Emotional Intelligence work hand in hand. Learn these tricks and master the risk as the best trading professionals! 

Equity Management and Emotional Intelligence

Equity Management is divided into four categories:

1. Properly Planning a Trade.
2. A good formula for the Preservation of Capital.
3. Knowing where to place your Protective Stop to avoid getting stopped out early.
4. The Importance of Emotional Intelligence, the Psychology of Successful Trading and Learning the Discipline of not fiddling with the trade.

What is Emotional Intelligence?

• The capacity to be aware of, control, and express one's emotions, and to handle interpersonal relationships judiciously and empathetically.
• The capacity to control your emotions in any stressful situation or perceived personal crisis, enabling your action to create a positive, productive outcome.
• Emotional Intelligence is the key to both personal and professional success.

Disciplines to follow for successful trading:

• Educate yourself on how the market works and thoroughly analyze and plan your trades.
• Create a trading plan and trade that plan. Do not deviate from your plan without developing another comprehensive trading plan.
• Quantify any potential loss. Don’t risk everything on one trade and do not overtrade your account.
• Remain focused and do not marry a trade. Be quick to change directions if that is what the chart is dictating.
• When in doubt… Stay Out!

A common problem that most traders face is trying to force the market to move in their personal direction. This is a very unsuccessful and devastating strategy. Never try to force the market to do what you want it to do. Recognize how the market is moving and trade in that direction. Create a trading plan and trade your plan!
It’s not about what you want. You must learn to want what the market wants, then trade in that direction. Want what the market wants, not what you want…

Great Traders win their trade first and then enter the market… Defeated traders enter the market and then seek to win.

When to pass on the trade:

You should pass on the trade if and when:
• You are tempted to get in for whatever reason.
• It requires a stop-loss order that does not meet your equity management.
• If you have not had the time to make a trading plan that includes:

  1.  A clear entry point
  2. A stop-loss order and
  3.  A limit to get out

• If for any reason you feel uncomfortable.
• If you are not clear in what you are doing
• If you feel you are being emotionally self-forced into making the trade or if someone else is forcing you.
• If you cannot afford the loss.

RISK VS REWARD - Example with a 50 pips risk per trade for 10 trades
1 for 1 – 60% of winning trades to make 100 pips
# of Wins – 6 for 50 pips gain per trade = 300 pips
# of Losses – 4 for 50 pips loss per trade = 200 pips
Net Profit = +100 pips

1 for 2 – 40% of winning trades to make 100 pips
# of Wins – 4 for 100 pips gain per trade = 400 pips
# of Losses – 6 for 50 pips loss per trade = 300 pips
Net Profit = +100 pips

1 for 3 – 30% of winning trades to make 100 pips
# of Wins – 3 for 150 pips gain per trade = 450 pips
# of Losses – 7 for 50 pips loss per trade = 350 pips
Net Profit = +100 pips

If you take your 10 trades x 50 pips risk/trade = 500 pips risk total
If you make 100 pips profit it's a 20% gain on your 10 trades. 100/500=20%

The Higher the reward vs the risk is, easier it is to be profitable.

And this is it from Nick. Hopefully, you have gained some new insights after reading this article. Managing your risk is truly the key to being profitable in the long run. Thank you, Nick, for this great summary!

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