Trading Emotions – The Good And The Bad

22 Jul
Forex Trading Emotions

Trading Emotions – The Good And The Bad

Trading Emotions can be a trade killer to many but to those who can control it has the upper edge. Emotions while trading Forex or any other form of trading is something you cannot avoid. If you have not yet come across this daunting obstacle, I can assure you it will cross paths with you sooner than later, during your journey to becoming a successful trade. This is a definite reality we all need to accept but most importantly know how to deal with it. We are all very much different when it comes to appearance, personality, attitude and mindset. In this very same way we all differ when it comes to emotions. The tolerance level, the way of dealing with it and most importantly knowing how to control it. The latter mentioned is the key to overcoming trading emotions. The Forex (Stocks, Commodities, Indices, Binary Options) market can at times be a very dark and lonely place. The best and brightest financial minds strive to accumulate their share of the profits. A scary fact to consider leaving you feeling like a fish in a big ocean of sharks. “Survival of the Fittest” as they say.

When money is at risk emotions tend to run wild. Yes, your hard earned money. During the opening part of this article, you might already have faced a variety of emotions such as fear or disbelieve. This is perfectly normal and an involuntary response. For a rookie trader, this can be like a brick wall between you and you goal. For the trader equipped with the knowledge to control their emotions, it is like a walk in the park. To achieve this state of mind might be easier for some than others. Time to take a look into Trading Emotions – The Good And The Bad.

What Exactly Is Emotions

“Emotion, in everyday speech, is any relatively brief conscious experience characterized by intense mental activity and a high degree of pleasure or displeasure. Scientific discourse has drifted to other meanings and there is no consensus on a definition. Emotion is often intertwined with mood, temperament, personality, disposition, and motivation. In some theories, cognition is an important aspect of emotion. Those acting primarily on the emotions they are feeling may seem as if they are not thinking, but mental processes are still essential, particularly in the interpretation of events. For example, the realization of our believing that we are in a dangerous situation and the subsequent arousal of our body’s nervous system (rapid heartbeat and breathing, sweating, muscle tension) is integral to the experience of our feeling afraid. Other theories, however, claim that emotion is separate from and can precede cognition.” – Emotion From Wikipedia, the free encyclopedia

As traders, we focus more on the psychological (Mindset, Thinking Process) than the physical effects emotions have on us. Trading is a “thinking game” after all, taking a toll on our mindset and decision-making process. Being in a positive mindset leads to making calculated decisions. As you can see these two elements form a whole.

What Causes Trading Emotions

As mentioned before the main culprit is the money factor. The source of this money makes it even worse in some cases. What do I mean by that? Trading Money You Cannot Afford To Lose!

  • Taking Out Loans
  • Investing Your Life Savings
  • Borrowing Money From Friends Or Family
  • Investing While In Debt
  • Using Your Last Few Pennies

These are just a few of the “WHEN NOT TO INVEST” checklist. See how the source of the funds can affect your mindset, leading to bad trading decisions.

What Are Bad Trading Decisions

This can turn into a few thousand-word novel if we had to go into depth when it comes to trading decisions. So let’s keep things simple and list the most important.

  • Revenge Trading (Simply Executing A Trade To Make Up For Losses)
  • Entering A Trade Without Making A Calculated Decision (Trading Blindly)
  • Just Trading For The Sake Of Trading (Forcing Trades)
  • Using No Stop Loss (I Cannot Lose A Trade)

I am sure most of you reading this are guilty of at least one of the above mentioned.

How Do We Deal With The Emotions

Just avoid the bad trading decisions? Don’t trade with money you cannot afford to lose? This is actually easier said than done. It takes discipline, patience and most importantly practice! Get your basics right folks. Sit on your hands if you have to just so you don’t click that mouse button. Learn from your mistakes. It happens to the best of us. The markets are not going anywhere anytime soon, so take your time and wait for trading setups to come to you. All these small things can have a major impact on your emotional state before, during and after a trade is opened and closed. Remember what I said earlier? One thing leads to another… Here is some positive trading emotions.

  • Set Yourself Realistic Goals
  • Past Mistakes Are Learning Curves
  • Surround Yourself With Positive Like-Minded Traders
  • Setup And Follow Your Trading Plan

Don’t Be Scared To Fail

The feeling of failure. Not a welcoming feeling no matter if it is in trading or any other aspect of life. Use that emotion to your advantage with the mindset not to feel like that again. That should drive and motivate you. Getting to a conclusion. People tend to give up too quickly, throwing in the towel. Be the odd one out!

If you are truly passionate about trading you will appreciate this quote

“Never give up on something that you can’t go a day without thinking about.” – Sir Winston Churchill