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Tips on How To Manage Your Emotions While Trading

How to stay cool when playing the market

Mental health and wellbeingTech and the online worldHobbies and Interests
By VoiceBox ·


Maureen is a freelance content writer from Kenya. She writes about Finance, Tech and Mental Health. She is also a graduate with a Bachelors in Environmental Planning and management. When she is not writing, she is either watching a movie or having a cup of coffee!

How To Manage Your Emotions While Trading — Keep Your Cool

In today's world, many young people are joining the trading marketplace. While trading, emotions can play a significant role in decision-making. It doesn’t matter if you are day trading futures or swing trading forex; you need to handle your feelings. I know this is easier said than done, especially when the market hasn’t been moving your way. However, the skill level in handling market situations and controlling emotions will help you perform well as a trader. 

So, How Do You Control Emotional Trading?

The short answer is through the power of harnessing your emotions. Step back from what you’re doing and analyze why you feel the way you do. It involves cultivating a state of non-judgmental awareness of your mind and body. Defusing your emotions will help you overcome your initial response and work towards a solution.

While emotions are often thought of as positive or negative, they are internal states that help us evaluate situations. Fear, anger, and joy all serve a purpose: They help us determine whether a situation is good or bad for us. For instance, if you had a loss, understand that situation instead of being angry and look for better trading tips to help you navigate the market.

In addition to harnessing your emotions, it’s essential to have an analyzed trading plan. 

Have a Smart-Trading Plan

Smart trading is the process of trading with a clear objective while having a specific plan for each trade. It includes risk management rules that are based on logical reasoning. A well-developed outline will allow you to evaluate the potential benefits of each trade while also limiting risks when needed. 

Emotionally-driven trading can lead to chasing losses or holding onto losing positions to recoup losses from earlier trades. A solid trading plan will help keep you focused and disciplined so that you don’t lose sight of your goals or deviate from them.

What Is The Source of Your Emotions?

Another crucial step to controlling your emotions while trading is identifying their source. What exactly are you feeling? Is it fear, greed, anger, or something else? One way to identify emotional reactions is to keep a trading diary. Record each time you enter or exit a trade and your reason for doing so. 

Make a note of how you felt during different stages of the trade and how this affected your decision-making process. You might find that a pattern emerges, such as feeling anxious before entering a trade or excited when making money. Once you have known the source of your emotions, you can work on controlling them, For example;

Fear of loss leads to avoiding stops, holding onto losing positions too long and anticipating bad news.

Fear of missing out leads to jumping into trades because everyone else does so. You end up not acting on setups that you planned for in advance.

Greed results in not taking profits because an expectation of more profit exists. It leads to doubling down when a trade goes against you and adds to losing positions.

Overconfidence leads to overtrading and excessive risk-taking. You end up ignoring rules and disregarding indicators until it's too late.

Relief from winning or losing leads to unplanned trades, violating money management rules, and ignoring indicators.

Anger or fear after being stopped out leads to revenge trading without any real plan or rationale behind the trade. It could also result in increasing position size to get "even."

A significant cause of these emotions is high expectations.

Manage Your Expectations

We are naturally optimistic creatures who like to believe that anything is possible. Unrealistic expectations can quickly lead to disappointment and frustration, resulting in emotional trading decisions. It can ultimately end up costing you money.

Understand your emotions and accept that not everything will always go your way. You can begin to control them so that they don't wreak havoc on your trading account balance and overall performance. Manage your expectations by taking a realistic look at where the market is headed and adjusting accordingly. 

Practice Mindfulness And Let Your Feelings Pass

Mindfulness is the mastery of bringing your attention to the present moment. One way to practice mindfulness is simply by noticing your feelings and emotions as they happen moment by moment. Do not try to change them or judge them as good or bad. Practicing mindfulness helps you become more aware of what's happening inside and outside of yourself so that you can respond appropriately.

Feel it, let it be, and move on when a negative feeling shows up. If you can go with the flow of life, trading becomes much simpler. When we try to avoid these emotions, they become stronger, just as if we were fighting a wild lion! The best thing is to acknowledge that you feel something, let it go by feeling it, and move on.

Distance Yourself From Your Thoughts

When your mind is cluttered with thoughts about what went wrong in the trade, you can’t see what’s ahead as accurately, so you're more likely to make mistakes.

Try this exercise to gain perspective on your thoughts: Imagine that your thoughts were separate from yourself. Take a step back from them so they don’t overwhelm you. It's similar to what you would do if someone came up and started yelling in your face. You would step back and give yourself some space, so the yelling didn’t have as much power over you.

To Wrap It Up

Emotions can significantly affect the way you act in the market. You have to control them at all times because even though they can be helpful, they can also lead you to make dangerous decisions. You must learn how to manage your emotions like any other resource in your trading portfolio.

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