Trading is all about numbers. Emotion has no place in the markets as it will only get you into trouble. While you’d think it may be obvious, this rule is ignored by most investors. Just go visit a popular stock message board and see for yourself. Almost every post is fueled by someone who is either overly optimistic or overly pessimistic. Watch a Level 2 screen when a stock price is plummeting or skyrocketing. People panic or get excited relative to the status quo and buy/sell accordingly. We need those people in order for the market to function as it does, but you do not need to subject yourself to the same debilitating approach to trading.
I’m aware that it is unreasonable to ask someone to be completely apathetic when trading. It is difficult to do almost anything without emotions. You don’t need to go so far as eliminating emotions; you just need to be conscious of them and the effects that they have on your trading. When a stock price is rising exponentially and you feel the need to buy in or get left behind, that is trading based off emotion. When a stock price is plummeting and you sell out of panic, that is trading based off emotion. You may prosper from this strategy every now and then, but it is far from sustainable. Common emotions involved in trading include greed, fear, excitement, impatience, stress/anxiety, pride, regret, etc. Avoid trading under the influence of these emotions at all costs.
Alternatively, create a set of trading rules for yourself and follow them. If a trade breaks one of your rules, there is a good chance it is an emotional trade. Never get attached to a stock or blinded by your desire for wealth. I see breakouts occurring on my stock screener on a regular basis. If I don’t know what is causing them, I stay away. It’s not always easy to do when you see a stock surging in front of your eyes, but trading without emotion pays off in the long run. A great way to get in the habit of trading without emotion is to do paper trading. Paper trading is basically just trading with fake money (you should still be realistic with your trades). You can write down your picks on paper or utilize a paper trading service online. When you trade with fake money, you are less likely to be blinded by extreme emotions like panic and over-excitement. After you practice your strategy with paper trading, you should be better equipped to execute your strategy when you start using real money.