Knowing how to keep your emotions in check can make the difference between success and failure in trading.
Especially if you are new to trading, the way you feel has a big effect on the decisions you make. Keeping a calm attitude is important if you want to trade consistently.
In this article, we talk about how important day trading psychology is for both new and experienced traders, and we give tips on how to trade without letting your feelings get in the way.
How Important it is to Control Your Emotions While Trading
Controlling your emotions when day trading is very important.
Imagine you just made a move before Non-Farm Payrolls (NFP) with the hope that if the actual number is higher than expected, the price of EUR/USD will go up quickly, allowing you to make a big profit in the short term.
NFP comes out, and just as you thought, the number is better than what was expected. But the price goes down for some reason!
You think about all the research you did and all the reasons why EUR/USD should be going up, but the price keeps going down.
When you start to lose, your feelings start to take over. This is called the “Fight or Flight” instinct.
This urge can keep us from reaching our goals, and for traders, it can be a big problem that makes them act in a way that isn’t in their best interest.
Professional traders don’t want to take the chance that a hasty decision will hurt their account.
They want to make sure that one quick decision doesn’t wreck their whole career. It can take a long time and a lot of trades to learn how to trade with less feeling.
3 Most Common Feelings Traders Possess
Fear, nervousness, conviction, joy, greed, and overconfidence are some of the most common feelings that traders have.
Fear/Nervousness
Fear is often caused by dealing too much. Trading with the wrong size makes volatility worse than it needs to be and makes you make mistakes you wouldn’t usually make if you weren’t worried about losing more than usual.
You might also feel afraid or worried if you’re in the “wrong” trade, which is one that doesn’t fit with your trading plan.
This article on overcoming your fears in trading will be helpful in the longrun
Conviction/Excitement
You’ll want to feel a lot of conviction and excitement, and you should feel these things in every trade you make.
The last part of a good trade is confidence, and if you don’t feel excited or sure about your trade, it’s likely that it’s not the “right” trade for you.
When we say “right,” we mean the move that fits with your trading plan. Both good and bad deals can be losers or winners.
The goal is to make sure that you only win and lose on good trades. You can help make sure of this by making sure you are sure about a deal.
Greed/Overconfidence
If you only want to trade when you think you could make a lot of money, you might be getting greedy.
You may have gotten greedy because you were doing well, but if you’re not careful, you could make a mistake and end up in a downturn.
Always make sure you’re using good trade mechanics, such as stops, goals, good risk/money management, and good trade set-ups. A good run can end if you trade badly because you are too sure of yourself.
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Tips and Strategies for Controling Your Emotions
If you don’t want your feelings to get in the way of your trading, it’s important to plan out your strategy.
In the financial markets, the old saying, “If you don’t plan, you plan to fail,” can be very true.
As traders, there is more than one way to make money. There are many plans and methods that buyers can use to reach their goals. But what will work for that person is usually a set plan, not a “hunch.”
Here are five things you can do to feel more in charge of your feelings while buying.
1. Make your own rules
Setting your own rules for trading can help you keep your feelings in check. Your rules could include setting risk/reward tolerance levels for joining and leaving trades through profit targets and/or stop losses.
2. Trade when the market is right
It’s also smart to avoid markets that aren’t in the best shape. It’s a good idea to not trade when you don’t “feel it.”
Don’t look to the market to make you feel better. If you don’t feel like trading, the simplest answer may be to step away.
3. Cut the size of your trades
One of the easier ways to stop your trades from making you feel bad is to make them smaller.
Here’s what I mean. Let’s say a trader puts $10,000 into an account. First, our trader makes a $10,000 deal on EUR/USD.
As the trade moves at $1 per pip, there are only small changes in the trader’s account. The trader put up $320 as margin, and the amount of useful margin, which is $9,680, changes by $1 per pip.
Now, let’s say that the same trader buys $300,000 worth of the same currency pair.
Now, our trader has to put up $9,600 for margin, leaving them with only $400 in useful margin, and the trade is moving at $30 per pip.
After the trade goes against our trader by only 14 pips, the usable margin is gone and the deal is automatically closed as a margin call.
The trader has no choice but to take a loss. There is no chance that price will go back up and turn the trade into a successful one.
In this case, the new investor just put themselves in a situation where their chances of success were not good.
Getting rid of some of the debt can make it much less likely that these kinds of things will happen again in the future.
4. Make a trading plan and record it in a trading journal
In terms of basic factors, it may also be a good idea to plan for different outcomes before big news events.
When new buyers use a trading plan and when they don’t, the results can be very different.
Putting together a trading plan is the first step to dealing with the emotional side of trading.
However, the trading plan won’t be able to completely stop the effects of feelings. Keeping a diary about your forex trading may also be helpful.
5. Relax!
If you are calm and enjoy dealing, you will be better able to act logically no matter what happens on the market.
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