Trading Emini Contracts: A Primer on Emotional Considerations

Its not uncommon, in fact it’s very common, for traders to read several acticles, possibly a book or two and decide that they are ready to tackle the trading the emini markets.  After all, they have armed themselves with some basic information and possibly a technique that should allow them to succeed.  At this point, untold millions of dollars hypothetically flow into their minds and untold riches are sure to be theirs.

Nothing could be farther from the truth.  I know of twenty very sound systems that will work perfectly will in trading the emini contracts.  If operated properly you should be able to reap great reward and extract a handsome profit from the markets.  Some systems work quite well, if you work them properly. But the mindset from many have as they embark upon their trading career destines them to certain failure.

Why?

It is their emotions that hold them back.  Now I have to admit that this is fairly esoteric stuff.  One common phenoma that I have witnessed from time to time is the transition from paper trading on a demo account to trading live.  It goes without saying that emini paper trading is an essential to become an essential trader.  Most traders should be able to consistently profit from five consequetive day of emini trading before they ever consider trading real money, and they should be able to duplicate these five consequetive days with regularlity.  But the next step comes when a trader transitions from when the trader migrates from paper trading to real, live trading.  Trading that involves real money.

On more ocaisons that I care to recount, paper traders completely break down when they start trading real accounts, with real money.  They often abandon the disciplined approach they learned trading in a demo account to near madness when they trade real money.  Why?  That’s fairly simple, and it is the most omimous part of the trading process.  Real emini trading involves real money, and real money involves real risk.

But it should be the same, shouldnd’t it?

It should, but the human psyche is an unpredicated variable, and the possibility of making great money is often a stumbling block for traders.  Many disentigrate when the possiblity of making great money presents itself.  This is no isolated problem.  Time and time again I have witnessed it and have been amazed what the potential for making real money does to the emini trading process.

People tend to chase the market, make trades they would not have normally made, take trades that they “hope” will turn out right….the list is endless.  But one thing I have learned and want to warn you about is simple:  Paper trading is a different animal than real time emini trading with real money.

Why?

Well,several studies have been done and are now in print that states that winning a trade (when trading live accounts) creates some chemical inbalances in ones brain.  One studies claims that there is and endormorphin response that claims a sort of euphoria as one acknowleges, subconscdiously, the success of a trade.  I have to point out that these studies are preliminary, but the evidence is compelling.  As I have said, it seems that one good trade causes people to lose their minds when trading and start taking unreasonable risks when they trade for real money.

Oddly enough, I turn off the superdome when trading, so that while I know I am having a fine trade, I never give myself a chance to see how far ahead ( or behind) when trading.  I never trade with the financial news playing, especially CNBC playing, as these talking head often produce news that is overly bullish and very distracting for the average trader.  Now I unusualy trade with some music playing, which allows me to concentrate on the chart alone.  

Over trading, taking a trade on a hunch..you name it…are all signs that you are not trading according you game plan.  Quite simply, many market moves when trading in a non discipline style cause the trader to see set-ups which are marginal, at best.  But greed forces him into seeing potential in these risky trades, and hope rather than confidence becomes the order of the day.  We don’t trade on hope, we use solid information sounrces and make an educated decision to enter and exit a trade.  This self discipline is one of the most difficult skills to master, and I encourage you to read a book on “the psychology of trading.”

Trade with confidence, with decisiveness, and never take a trade that doesn’t meet your criteria.
This is easier said than done, and if you are trading more than 5-8 times a day, you are overtrading and making trades than probably don’t meet the critieria of your trading style