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December 5, 2020

How To Take The EMOTION Out Of Trading

The truth is, whether you are making it or losing it, Money generates a lot of emotion with just about everyone. From the High of winning on a big trade to the sinking feeling and anguish of losing a bundle. So how do we keep a lid on our emotions when we are trading? Here are some strategies that should help.

Most traders know they should have a well thought out trading plan. That is not the problem. Having the Discipline to stick with the plan no matter what is the problem. We have all done things like Not cutting our losers when trades go against us, and then doubling down on losing trades to prove we are right (also called revenge trading!)

There is no place for ‘gut feelings’ or ‘hunches’ in Forex trading. Successful traders spend just as much time in planning their approach as in trading. This planning is the key to keeping your emotions in check. The more defined and systematic you can make your trading system, the easier you will be able to manage your trading.

Experienced traders expect to lose trades. That’s right! They know losing is part of the game so they expect it to happen. To them it’s inconsequential. What they are focused on is their Win / Loss ratio. That ratio will tell them whether their strategy is working or not… rather than the outcome of each individual trade.

Here are some more ideas about controlling emotions.

  • Set some personal rules about ‘if and when’ you will trade. Are you relaxed? Or, do you have some issues (personal, social) distracting you at present. If you do, then don’t trade. Get back into trading when the issue is resolved or forgotten. Being relaxed when you trade means that you are better equipped to respond rationally to changes in the market.
  • Another rule may be setting up your risk / reward levels. What are the tolerances when entering and exiting trades? Where will you place your stop losses?
  • Set you trade size to match your emotional tolerance. This might mean lowering your leverage while maintaining a reasonable profit target.
  • Know what market conditions are ideal for your trading style. For example, if the market is highly volatile due to some news release, you may decide to stay on the sidelines for the day. In any regard, you should always be aware of the timing for upcoming key news events as these may cause significant market volatility.
  • Be disciplined about keeping your Trading Journal up-to-date. As mentioned earlier, this is how the experienced trader keep tabs on their Win/Loss ratio. How else will you know if your strategy is really working or not? Or whether it needs a tweak here or there.

Finally a word about Greed. This one emotion more than any other can destroy trading account. Not only can it corrupt a trader’s decision-making skills on a losing trade, it can often do the same on winning trades. Examples include adding Capital to winning positions that can still reverse; and removing ‘take profit’ positions to try to get more out of the trade. Sticking to a disciplined trading plan can help you to manage feelings of Greed.

In the end success is always about ‘Self-mastery’, and Forex trading is no exception. We hope these strategies help in some small way to take you to the next level!

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