Ari Kiev says that instead of letting your emotions dictate your actions, let the emotions run their course. Keep a journal and observe what effects your emotions have you on you. Get to know yourself better and take more precise actions. How much does psychology play into trading? Think about this. Psychology IS trading. Psychology is 90% of the reason that stocks move. Computers don't make the moves, people do. So today, we will discuss The Psychology of Risk by Ari Kiev. I will discuss some of the major points of the book and dig up some gems, for your enjoyment. The good news is that Kiev's book has a bias towards short-term trading. Let's look at some of his ideas.

1. Your heart leads you. The problem with most traders is how they automatically react to their emotions. Everyone gets emotional to some extent when trading. The key is to first observe your emotions and then act. Do not let your emotions automatically move you into a reactive approach.

2. Questions. Answer these questions and you will be illuminated. As a trader, what more do I need to know? What can I do to change my self-limiting habits and attitudes that often lead to repeated failures or limited success? How do I avoid being trapped with over analysis, regrets over losses, and other things that preoccupy when I am trading?

3. Goals. Goals require you to act differently on a daily basis and that forces you to break out of old habits, which many people find uncomfortable. This feeling of anxiety is really a blessing though. The alternative is to remain comfortable and stagnant. It takes guts to set goals and it takes discipline to achieve them. With goals, your trading purpose goes from "I want to make as much money as I can" to "I need to make 50% this year and therefore I must..." Goals create well-defined action.

4. Mental accounting and justification. It's very common for traders to treat fast- earned profits differently from the rest of their capital. This type of behavior is completely irrational even though it is very common. It happens very often with gamblers. Another common mental accounting technique is to justify losses in one trade with gains from another. It's like saying, it's okay that I'm losing money on GM, I am making money on TM. So, I suppose I can just hold on to GM as long as TM makes up for my losses. Poppycock! If TM is the winning stock, get rid of GM and hold on to your strong trade. The key here is to evaluate every trade as if it stands completely alone. If it was the only position in your portfolio, what would you do with the stock?

5. Trading and self-worth. Just like in many areas of life, traders often trade in hopes of showing self-worth and making themselves feel better about who they are. Have you ever done this? Think about it. Have you ever felt like mister cool, after a profitable trade? Ironically, trading is not a measure of who we are or what we are worth. To step into that world is highly dangerous. If trading defines who you are, then how will you feel when you trade poorly? The key here is to ask this question continuously, "What is the most effective way to trade?" It has nothing to do with what sort of a person you are.

6. Assumptions and spontaneous thoughts. Many traders don't realize how much of their decision making is dictated by inaccurate assumptions and spontaneous thoughts. For example, a trader might be watching CNBC and hear that the Fed Chairman is thinking about raising interest rates even further. Next thing you know, the trader sells all of his utility stocks right as they are bottoming out. Realize that trades are often made using irrelevant and emotional information. Before placing a trade, ask yourself why you are placing the trade. If your answer is not strong, then don't trade.

Price Headley is the founder and chief analyst of BigTrends.com.