Managing Emotions In Trading

 

Sophia Todorova has a background in teaching and psychology, and as such relishes the idea of assisting new traders on their journey to Forex trading success. Technical Analysis is her passion. The charts speak, and she listens.

 

It is certainly not news when I say that emotion is counter-productive when it comes to trading. However, we are all humans, and it is usually a constant struggle to control our emotions. They are there to stay, hence the topic of this article relates to managing those emotions. I refer both to the negative, and also the seemingly positive emotions. We are all aware of, and exert much effort in controlling the negative ones such as uncertainty and fear. Others such as confidence, taken in the extreme do have equal potential to cause damage.

Here are some tips on how to keep our trading decisions emotion-free:

Follow Your Strategy Mechanically

This is easier said than done, I know. However, it is possible. The reasoning behind this suggestion is that when following a specific set of rules for entries and exits in trading, this leaves no room for emotions. This will work providing that your trading strategy/system has been tested and proven enough to give you an idea of what results to reasonably expect after a particular time period. When you know what your average results are at the end of the day/week/month, you will be less likely to focus on each individual trade.

 

Use A Checklist

T checklist should have a list of confirmation signals you look for before entering a trade. It helps to enforce discipline and control emotions in two ways: (a) It reduces the chances of  making an error by getting into a trade without the confirmation that your trading strategy demands. (b) The very act of stopping to confirm entries on the checklist will slow you down and help to prevent impulsive trading. Instead of immediately jumping into a trade, the time taken to methodically confirm a trade setup could ease the urge to break your trading rules.

 

Learn and Move On!

We have a tendency to beat ourselves up when we make a mistake. If you break your rules and suffer a loss as a result, it is important to acknowledge and accept the error as what it is. A journal will come in handy for this. Make notes on your reasons for having taken the trade, and how it deviated from your trading plan and strategy.

Having spoken so much about rules, I know that many traders do not have clear, exact, definite rules that they follow in their trading. The importance of rules cannot be understated, because they are the anchors that demand that we take responsibility for our own trading. Also, without rules to give an element of consistency to the trading decisions, the ultimate goal of every trader will remain elusive. How can we get consistent results from our trading if  the manner in which we execute our trades is random?

Thanks for reading, and please do share your own ways of dealing with your emotions as a trader.

 

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Winners Edge Trading was founded in 2009 and is working to create the most current and useful Forex information and training available on the internet.

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