How to handle your emotions (not just in trading)

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Trading Psychology – 5 Tips To Help Control Your Emotions When Trading

When I just started trading on my own I lost a little over $10,000 the second week. I had made the full-time jump and therefore was desperately emotional to make it work. Looking back now, I probably did things I would never do today. I pushed trades into the market when it wasn’t a good time to trade, I let trades run up huge losses without stops, and took any profit I got quickly.

Below is a great display of the difference between the “retail traders” on the right and the “professional traders” on the left. Notice how when the retail traders are screaming SELL, the smart money is slowly buying and visa versa.

I had never been an “emotional trader” but all of a sudden I was stuck. My emotions had got the best of me. So what changed right? Well, I went back and started to revisit the roots I learned trading for Deutsche Bank that I’m going to share with you below.

The Fear Of Missing Out (FOMO)

Here’s the scenario: you’ve been sitting on the sidelines while watching the market rally nearly 100% off the March lows from 2009. Are you itching to jump in and buy? Are you frustrated because you are missing profits that others are making?

Many traders I’ve been talking to feel this way right now and it’s not uncommon. We have all watched the market rally much further than anyone expected. And, it’s not just the swing trader who feels this way. Day traders are feeling the heat as a trending market offers little entry opportunity.

Even though it may be hard, sitting on your hands can be one of the most difficult things a trader NEEDS to learn. If fact, I really do feel like it’s a requirement for a successful trade – one lesson I learned quickly during my first few weeks trading at home. We have to treat trading like a business not a hobby – and sometimes waiting for the right entry is part of the business.

Treat Trading Like A Business

After talking with some former traders whom I worked with, I realized I was doing 1 thing completely wrong! I was blindly waking up each day and trading with no real direction – how stupid of me right? Sure I had traded for the banks and knew what to do – but being at home was completely different.

What helped me get over the hump was to treat trading like my own personal business. I wrote a business plan, had specific achievable goals, and daily activities to keep my emotions out of the way. What this helped me do was to remove my emotions from the traditional Fear and Greed cycle .

The trader who can remove themselves from this cycle and treat it like a business is much less likely to force trades out of boredom or because he/she feels an internal pressure to be productive. Case in point – this is where I went wrong when I lost that $10,000.

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Let’s Control Those Emotions Shall We

Productivity can be extremely helpful when starting to trade. If you are bored then you are more likely to make stupid trades. If you are business searching, analyzing, reading, etc then you are more likely to find amazing trades with great risk/reward.

Here are 5 practical tips to help you learn to be productive and control your emotions :

1. Learn Something New About Trading. Maybe you have wanted to learn more Iron Condors or Credit Spreads, or maybe you have been wanting to learn more about RSI and MACD indicators. Well, stop thinking about it and schedule some time to sit down and do the hard work – pick up a book, get some coaching, watch a video tutorial.

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2. Perform Some In-Depth Market Research. You have to be curious about something that’s happening in the market right now right? Down times in the market can be great opportunities to do some intense market research.

3. Paper Trade Until You Fall Over. I STILL paper trade each week. I test out new strategies, new indicators, new ideas with paper money first before I ever put real money to work. Focus on a particular setup and paper trade it on a simulator 10 or 20 times. A great new tools is thinkorswim’s ThinkBack trading that allows you to “replay” an entire day of trading just as if you were reliving it all over again!

4. Write A Trading/Business Plan. If you don’t have one you need one and if you have one you need to revise it monthly. These can always be improved. Take a section of your plan and think carefully about how you can improve it, and then do it already!

5. Analyze 5 Completely New Charts. Pick out stocks or ETF’s you’d like to trade and analyze the charts carefully, making a list of the bullish and bearish reasons to trade it. This will help you think carefully about the trade and remove your emotions completely after making the list.

How Can You Add To This?

You can never control the market and you can never control how any given trade will turn out. But, you can learn to control your actions and emotions with a solid trading plan and by keeping yourself productive.

Add your comments below and share some things that have worked for you! Maybe share a story of a bad trading experience and how you have changed since to remove your emotions?

Forex Trading Psychology – Manage your emotions while trading

Having expertise in market analysis or having extensive knowledge about Forex is not the only factor that determines the success of a Forex trader. You may know thousands of successful strategies and you may be good at using all the indicators out there, but if you don’t learn something that is very important then you will have a hard time making money in Forex. It is often overlooked or completely ignored, but it is something that every Forex trader should become good at. It is the skill of managing your own emotions and is a part of Forex trading psychology.

Victor Sperandeo, a founding partner of EAM Partners, L.P and popularly known as ‘Trader Vic’ says

“The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading.”

What he says is absolutely true and is an essential concept in Forex trading psychology. There are many people who are extremely intelligent, but still lose in Forex. Because the emotions like greed, fear and an intense euphoria after a profit trade cloud their decision-making ability.

When you don’t know how to handle emotions, it can ruin your trading day and cause damage to your trading account to the extent of losing a huge amount of money. The reason is simple; We take hasty and irrational decisions when we are angry, depressed or greedy.

How do Experienced traders handle emotions?

The Forex trading psychology of Experienced traders are quite good and they do handle their emotions well. They exactly knows when to trade the market and when it’s better not to trade. The below are the ways how they handle their emotions.

1) They don’t trade out of greed

Thus they avoids many things that will cause a stressful emotional response. And if they are really in fear or not in the mood to trade, they simply avoid placing trades. It is better than placing a trade and losing money, right?

2) They are aware of the uncertainty in Forex

Experienced traders are aware of the uncertainty in the Forex market which is not the same as lack of confidence. It is just a fact in Forex, No matter how good your trading decision is, the market can unexpectedly go against your predictions at any time. If you clearly understand this while placing a trade, you won’t get a shock when the trade results in a loss. All you need to do is to be fully prepared to face the loss. There is a saying: Hope for the best but prepare for the worst. You have to be mentally prepared to accept the loss you face. This will certainly reduce the impact of negative emotions. The Awareness of uncertainty is another crucial thing to understand when it comes to Forex trading psychology. For further reading, #4 tips to counter market uncertainty.

3) They never expect quick profit

This is also related to greed. What do novice Forex traders do when they want to make some quick money? They just place trades with huge trading volume and lot sizes. But when you choose a huge lot size, you are also risking a huge amount of money. While Forex traders who do this only consider one possibility and blinded by thinking how much they can earn if the trade goes well, they completely forget or ignore another possibility: If the trade doesn’t go as expected, they will lose a huge amount of money. Also, in a few more trades they end up losing their entire capital. Experienced traders never do this! They always follow a good risk management.

To sum up, understanding three important things about Forex trading psychology can make a big difference: Taking breaks when you are too emotional, always being aware of the uncertainty in the Forex market and practicing wise risk management.

Prevention is better than cure

Here is another thing to keep in mind. Avoid all possible ways that emotions can ruin your performance. We are going to list some tips which are going to help.

  • Have a very good trading plan. Trading with good planning reduces risk and also prevents any emotions to affect your performance. You need to develop your own personalized trading plan and develop a solid trading discipline.
  • Once you place a trade, don’t keep looking at the currency movement. Just place the trade and walk away. If you have the habit of watching the trade, you will give in to many temptations. You may move your stop loss hoping that the market is going to reverse. You may move your take profit level hoping that the trend is going to continue in the same direction. If you keep moving these values, there is no point in setting them in the first place. It also feeds your emotions.
  • Always use well-proven strategies. When you use a strategy that has been tested enough in the past, you will be able to avoid losses more easily.
  • Once you have got three consecutive profit trades or losing trades, it is better to take a break. If you get three consecutive profit trades, your fourth trade may be entirely motivated by overconfidence. If you get three consecutive losses, your fourth trade will be driven by an extreme need to earn back the money you have lost.

Managing your emotions is the key to long-term success

If you didn’t know how your emotions can spoil your trading life, then you have learned a very valuable lesson from this post. If you have ever wondered why 90% of Forex traders lose money and quit trading forever, then you have the answer now. Not being able to handle emotions and not understanding Forex trading psychology is the strong reasons for this to happen. Every other reason you can think of springs for this one reason.

For example, one thing that makes a lot of traders to quit trading is poor risk management; they risk more than they should. But why do they practice poor risk management in the first place? The definite one-word answer to this question is ‘greed’, which is an emotion. Why would anybody jump in and start live trading without gaining sufficient experience in trading in a demo account? The same reason! They want to make quick money. If you have learned the art of managing your emotions, you can certainly call yourself as an experienced and professional trader.

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How to Handle Your Trading Emotions

Though traders may not readily admit to it, it is quite common to lose money in trades due to emotions. Whether is due to losing or winning, it is easy to get swept up into your emotions. As a result, you end up placing trades in a heightened state.

Now, as you well know, you need to be clear headed when dealing with binary options. You need to be able to read the charts, derive meaning, and finally place a trade with a high level of certainty. So, if you are prone to giving into your passions, you could find yourself losing out. Here are some tips on how to handle your trading emotions:

Stick to Your Trading Plan

This is perhaps the most important piece of advice that you can receive. Now, it may seem that it is simple enough to do so. After all, it is just a matter of following instructions that you have already set for yourself. Just for a moment, imagine a scenario where you have been following this plan and have continued to experience losses. How are you going to feel then? There is a good chance that you want to tear it up and toss it out of the window.

This can be even be true when you have hit a winning streak and your plan tells you to stop trading. It is important to get yourself into the habit of always following your plan. Overcome the urge to deviate from it, even if you may feel like you are losing out on an opportunity.

Acknowledge Your Limited Control

The markets are simply beyond your influence. They are going to behave in a manner that is not always predictable. This means that from the moment that you place your trade, you will need to relinquish control over the situation. It is vital that you get yourself to understand this lack of power, however.

This isn’t the easiest task, especially when there is money involved. Nonetheless, getting into the habit of knowing when to let go is going to make it less difficult to come to terms with how the trade ended. In turn, you will also see that losing your temper or getting depressed is likely to have little effect on future trades.

Don’t Trade Unless You Are Calm

If you have just come home from work and are stressed out or agitated, now is not the time to start trading. Conversely, if you are feeling happy and are in high spirits, it is not necessarily the ideal time either. This is because you need to be calm and neutral in order to trade properly.

Your trades should not be clouded by anything – either negative or positive emotions. Instead, only sit down to trade if you are feeling at ease. Therefore, you will not have to worry about your feelings overcoming what you have planned.

Step Away After Trades

As you are only human, it is quite natural to get a high if you have won a trade or to feel sad after a loss. This is why the second a trade has expired, you need to step away from the computer. After all, there is nothing that you can do after this point.

It is best to take a short walk – even one that will last only a couple of minutes. This will help to refresh your mind and get it focused. If this is not possible, try distracting yourself with something else. Again, you only need to do so for a short period of time.

These are some of the ways that you can learn how to handle your trading emotions. Soon, they will less of a problem to contend with.

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