How to control your emotions
Online trading is an emotional roller coaster no matter how experienced you are. Success isn’t about shutting out all emotions, it’s about being able to control them and not letting them control you. So, what are some of the emotions you need to manage when trading?
Doubt
Being cautious in the markets is a good approach, but when you start doubting every decision, it could be a recipe for disaster. Whether it’s about transitioning from a practice account to a real one or about placing a specific trade, not second-guessing yourself can be challenging.
You may not be able to completely rid yourself of all doubt, but there are ways to manage it. First, remember everything you’ve learned so far. The fundamentals are there to give you a solid foundation to build on. Second, try to stick to your trading strategy. You built it for a reason, it’s tailored to your goals, and it acts as a blueprint for your trading activities. And third, make use of the tools available to manage your risk, as they can help limit the downside of a trade.
Fear
Fear is a powerful emotion that often overcomes all logic, leading to bad decision-making. In other situations, it can also leave you paralyzed and unable to act. Maybe one of your trades isn’t going the way you expected, despite all your analysis pointing to the contrary. What do you do?
Don’t make any rash decisions out of fear. Is there any reason to think that your strategy, which seemed logical at the time, is flawed? Have things in the market changed unexpectedly? Is your risk management strategy not quite right? If the answers to these questions seem to validate your original plan, there’s likely no need to fear. Remain confident and monitor your trade closely, things could still turn in your favor.
Greed
What about emotions that tend to appear when things are going well for you? Greed is dangerous, especially when it comes to trading. You see your trades making a profit and think, why not more? This can be a slippery slope that can often lead to disaster.
Whether it’s controlling the temptation to increase the size of a winning position or avoiding acting on unfounded rumours of a big-money trade, greed can be hard to manage. Once again, the best thing you can do is try to stick to your plan. You built your trading strategy for this very reason, to take emotions out of your decision-making. This is something you need to remember, especially when you feel greed taking hold.
Overconfidence
Another emotion that may rear its head when things are going well is overconfidence. After a string of winning trades, you may start to feel you are invincible and that you can do no wrong. This is a very dangerous position to be in, as logic often goes out the window.
It is important in these moments that you don’t start taking more risks than normal. Remember, not every trade can be a winning one, and although you may be doing well now, things can change quickly. Always be aware of this and avoid straying from your trading plan, no matter how you may be feeling.