Larry’s note: Welcome to Trading with Larry Benedict, my free daily eletter, designed and written to help you make sense of today’s markets. I’m glad you can join us.

My name is Larry Benedict. I’ve been trading the markets for over 30 years. I got my start in 1984, working in the Chicago Board Options Exchange. From there, I moved on to manage my own $800 million hedge fund, where I had 20 profitable years in a row. And, I’m featured in the book Market Wizards, alongside investors like Paul Tudor Jones.

But these days, rather than just trading for billionaires, I spend a large part of my time helping regular investors make money from the markets. My goal with these essays is to give you insight on the most interesting areas of the market for traders right now. Let’s get right into it…

Keep your emotions in check.

You’ll often find that advice in just about every trading book you’ll read.

However, as we all know, it’s much easier said than done. Emotions flow through all of us no matter what we’re doing, especially when it comes to the markets…

Compare the euphoric high of riding a winner to the crushing low of taking a losing trade.

For some, the swings between the highs and lows are enough for them to swear off trading forever.

The truth is, it’s almost impossible to take emotions out of trading completely.

So, instead of trying to turn yourself into a robot, you need to find a better way to manage those emotions.

And that all boils down to how you approach your trading in the first place.

One way emotions can get the best of you is by trading more than you can afford to lose.

For example, say you had $10,000 in your trading account and you decide you’ll go all in on one trade. Well, of course you’re going to be nervous…

There’s a very big chance that you’re going to blow up your entire account with just the one trade.

Compare that to another trader with the same account size who risks no more than $200-$300 on any single trade.

It’s going to take an incredible string of losses for the second trader to lose just a fraction of their account. That’s hardly enough for them to worry about.

That’s why establishing clear risk management rules before you place your first trade is going to take a lot of the emotion out of your trading strategy.

Meaning, you need to know exactly how much capital you’re prepared to risk on any trade – and stick to it.

Another equally important factor is setting realistic goals.

Too often, new traders come into the markets and set their goals too high. So, they let their emotions (mostly greed) get the best of them and chase every move… putting too much of their money into each trade.

Inevitably, each trade then becomes a roller coaster ride.

Before they know it, they’ve gone through all their funds and are out of the game. Even if they want to come back to trading later on, those big losses will leave emotional scars.

However, I’ve learned from decades in the market that you need to do the opposite.

You need to get into the habit of taking lots of little profits as often as you can. Because not only does it build your account (and confidence), it also helps keeps your emotions in check.

For example, if you aim to make a $200 profit per trade with a $10,000 account, you’re just not going to get as emotional as you would betting your whole account on a single trade.

Soon all those $200 profits start to add up – giving your account size a real boost.

Then, when you aim to increase your profit target to $300 or $500 per trade, it’ll be less of a big deal. That’s because you’ve already trained yourself into taking profits off the table nearly every other day.

Now you can put your efforts into constantly refining and improving your trading strategy, rather than tying yourself up in knots with each trade.


Larry Benedict
Editor, Trading With Larry Benedict

Reader Mailbag

Are you good at managing emotions when it comes to trading? If so, what techniques help?

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